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Companies watch, wait as Google mulls leaving China

By Gabriel Madway

SAN FRANCISCO (Reuters) - Google Inc's potential departure from China may not prompt others to follow suit, but its high-profile declaration could help shine a light on the business environment in the world's third-largest economy.

Google said on Tuesday that it might stop operations in China, an important market for everything from energy to software, a move that could ramp up pressure on others to take a stand.

"This is going to be raised to another level, the U.S. government is going to get involved," said UBS analyst Brian Pitz. "This is a bigger thing that just Google right now."

Still, a day after the announcement, no other company had joined Google's cause.

While abiding by local laws is a must anywhere, China's record on human rights, and its growing status as a political and economic superpower, means companies often submit to practices they consider distasteful.

"Foreign companies ... have to 'play by the rules' whether explicit or just norms," said Yuwei Shi, dean of the Graduate School of International Policy and Management at the Monterey Institute of International Studies.

"Companies do get used to some of these things, but for some companies it's never comfortable."

Google is uniquely positioned to go it alone, given its global stature and small business footprint in the country.

China is a tiny market for Google, at an estimated $200 million to $600 million in annual revenue versus $22 billion worldwide.

China's economy is likely to grow 9.5 percent this year. [ID:nTOE600009] It is already the world's No. 2 car market, the No. 2 PC market, the world's largest telecom and Internet markets by users.

The Chinese market is difficult to navigate for many U.S. companies. But the market opportunity in the country is so vast that companies ignore it at their peril, analysts say.

"It's not going to make anyone reconsider anything. It's a realpolitik world of business. People want in," said Zachary Karabell, president of RiverTwice Research in New York and author of "Superfusion: How China and America Became One Economy and Why the World's Prosperity Depends on It".

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For a related TIMELINE Graphic, see: http://graphics.thomsonreuters.com/0110/CN_GGL0110.gif

For a Graphic on China market share, see: http://graphics.thomsonreuters.com/119/CN_BAIDUG1109.gif

For a Graphic on Google's share price: http://link.reuters.com/ted43h

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SHAKEN BY ATTACKS

Google said at least 20 major corporations in sectors such as finance, technology, media, and chemical were hit by cyberattacks that originated in China. The company suggested the strikes were more than mere isolated hacker attacks.

Only software maker Adobe Systems Inc and Web hosting company Rackspace Hosting Inc have come forward to say they were also targeted.

Many companies -- including names as diverse as Cisco Systems Inc and Northrop Grumman -- have simply declined to comment on Google's announcement.

Media giants News Corp and Time Warner Inc each said they were not hacked and said their future plans in China are unchanged. Yahoo said it stood "aligned" with Google, but made no mention of changing its policy in China.

Google said the attacks, along with fresh moves by China to limit free speech, prompted its decision.

"Will we see something like we saw in the 1980s with companies having to respond to South Africa and apartheid? China's a much bigger market than South Africa ever was," said FBR Capital Markets analyst Heath Terry.

William Miller, an emeritus professor of management and computer science at Stanford University with experience in China, said Google shone a light on concerns held by a number of companies doing business in China.

"I don't think it will be just a Google story and it's not just about media companies. There are a lot of other companies who feel that there are some sorts of attempts at espionage."

Gartner analyst Whit Andrews said Google's move puts public relations pressure on companies like Microsoft Corp, SAP and Oracle, but those companies have much more at stake in China than Google.

"The impact on revenue and company valuation is substantially greater for every other major technology company than it is for Google," Andrews said.

"I don't think anybody is going to ride in the wake of Google, I don't think anybody else can afford to," said Northeast Securities analyst Ashok Kumar. "If you decide to play in China, you play by their rules."

(Reporting by Gabriel Madway; Additional reporting by Sinead Carew, Yinka Adegoke and Jim Christie; Editing by Peter Henderson, Phil Berlowitz)

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