Does Google needs China more than China needs Google?

Search leader hiring more workers in world's biggest Internet market. How come?

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Six months after shutting down its search engine in China in a dispute over censorship, Google is beefing up staff in that country, prompting speculation that the company might cut some kind of deal with the mainland government that would lead to the return of google.cn.

This Associated Press article reports that "Google is hiring dozens of marketing and technical employees in China to defend a shrinking market share against local rivals after closing its Chinese search engine..."

A couple of quick points:

1) While Google did indeed close down the google.cn search site, the company retained a physical presence in China with sales offices and an R&D center. And, as the AP notes, it's also pushing the Android OS for mobile phones in China.

2) There are no "rivals" from which Google must defend its dwindling turf. There's one market leader, Baidu, which has 70 percent market share. Then there's Google, a distant second with 24.2 percent of China search engine revenues in Q2, and down from Q1's 30.9 percent. Most of that lost market share has gone to Baidu, AP reports.

How does Google get any market share in China if it shut down google.cn? Because Internet users on the mainland can access google.hk, its search engine based in Hong Kong, a Chinese territory exempt from mainland censorship. But google.hk isn't always accessible to mainland Internet users, plus the Chinese government could decide to block it at any time.

With more than 420 million Internet users (and the potential for hundreds of millions more as standards of living improve), China is a market with enormous financial potential. Google will never overtake Baidu in China -- really, how could it, given that Baidu essentially is the country's official search engine? -- but 20 percent to 30 percent of a massive growing market wouldn't be bad. Which is why it wouldn't make sense for Google to hang all of that on an offshore version of its search engine that could be censored.

Google basically has two choices: Continue without a search engine in China -- possibly allowing a competitor like Yahoo to eventually grab the No. 2 slot in the world's hugest market -- or accede to the Chinese government's censorship edicts in order to get back into the game.

The search giant has had trial periods living with each of these choices for the past year. And it's worth remembering that prior to last January's announcement that it no longer would censor its google.cn search results under orders from the Chinese government, Google was censoring google.cn search results under orders from the Chinese government.

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