Will Google enter China?
March , 2014
Google

At Davos, Er ic S c hmidt, the current c hair man of Google, discussed how Google might be enter ing China, regard less of whether or not the Chinese go ver nment wants them to. Google have stated that the y could utilise encr y ption tec hnolog y to get around str ict censorship r ules that are in place in countr ies like China and Nor th Korea. The mere fact the option is being discussed means there is at least a slim c hance of the concept becoming a realit y.

In coming years, companies like Google might be able to enter into the Chinese market under what might be considered more “nor mal ” circumstances. Under the S hanghai Free Tr ade Z one project, Chinese author ities said that the Z one wil l e ventual l y have “open inter net ser vices”, impl y ing that Google would be available f or Chinese inter net users. Progress towards this end, howe ver, seems to be remo ving r ather slowly.

W hile the concept might seem like a pipe dream, the c hances of Google enter ing China o ver the next five to ten years are seen as high.

Baidu

As of this w r iting, Baidu is dominating the Chinese searc h engine market with more than 63 percent of the share. If, as expected, howe ver, Google enter the China market, it is widel y accepted that Baidu would go on to lose a consider able por tion of its current share. Moreo ver, it is likel y that the market wil l begin discounting the impact of suc h a venture bef ore it actual l y star ts.

Fol lowing on from a magnificent r al l y, it may wel l be the r ight time to star t taking profits on Baidu. The r isk and re ward payoff is far from as favour able as it was when Baidu was tr ading at half the f or ward P E r atio that it is now tr ading at. Based on valuation, Baidu is no longer considered to be attr active, so the possibilit y that Google could enter China could wel l be a major obstac le f or Baidu shares.

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