Google Inc said it will stop automatically redirecting Web searchers in China to an uncensored portal in Hong Kong as it hopes to convince Beijing to renew its operating license in the world's largest Internet market.
Users are now required to click anywhere on the Google.cn page in order to get redirected to the Google Hong Kong search site, instead of being automatically rerouted.
Google's unexpected announcement comes a day before the Internet giant's China license is up for renewal.
The company's shares dropped 3.4 percent in early trade on the Nasdaq stock market. The Nasdaq was down 3.3 percent.
It's clear from conversations we have had with Chinese government officials that they find the redirect unacceptable, and that if we continue redirecting users, our Internet Content Provider license will not be renewed, Chief Legal Officer David Drummond wrote in a blog, posted late on Monday night in the United States.
Without an ICP license, we can't operate a commercial website like Google.cn so Google would effectively go dark in China.
Three months ago, Google closed its China-based search service and began rerouting traffic to an unfiltered search site in Hong Kong, drawing comments from Beijing that raised doubts about the company's future in China.
China, with its business potential, is a hard market to give up, said Cao Jun Bo, chief analyst at Beijing-based technology research firm iResearch.
Google competes with Baidu in China's market of 380 million Internet users. It said in January it might quit the country because of censorship, following a hacking attack that it said came from within China.
China-based websites need ICP licenses to operate in the country. China's Ministry of Industry and Information Technology renew them annually, although industry sources said the process is largely procedural and it is very rare for an ICP license to be revoked at the point of renewal.
Google has started taking a small number of users to a Google.cn site that offers a link to Google.com.hk, rather than directly to the Hong Kong page.
The new Google has an image of the Google logo and a non-functioning search box. Below are short messages saying We have already moved to google.com.hk and Please save our new website. Clicking on much of the page redirects users to the Hong Kong site.
The Hong Kong search engine does not offer users inside China unfettered access to information that the government wants blocked. Domestic firewalls prevent connections to many websites that Beijing objects to.
The Google.com.hk site is also periodically unavailable from mainland China, and searches can be unstable.
Google's mobile operating system, Android, is among Google's high potential operations in China.
China Mobile has released smartphones into the China market using Android, and Credit Suisse analyst Wallace Cheung expects it to one day become the most popular mobile operating system in China.
On Tuesday, China's Foreign Ministry declined comment on Google's decision to end automatic rerouting, but Drummond said he hoped it would be acceptable to the Chinese government.
It is unlikely Google would have moved without some blessing from Beijing, and there certainly would have been negotiations about the change, said iResearch analyst Cao.
In an interview with the Wall Street Journal in March, Google's co-founder, Sergey Brin, had said the decision to reroute users to the Hong Kong site was a solution indirectly proposed to the firm by the Chinese government.
A Google spokeswoman declined to comment on the details of the negotiations with Beijing.
Google, which runs two research centers and has several hundred employees in China, may already have paid a price in lost talent for its spat with the government.
Some executives at its China operations have left since the dispute flared up, as have some at its partners under the AdSense advertising program.
It seems clear they want to have some engagement or business in China. But they are at a point right now where an increasing number of partners and AdSense partners are leaving Google, said Mark Natkin, managing director of Marbridge Consulting.
Natkin said at least 3 other licenses for Google business units in China are due for renewal in June.
Shares of Google fell $16.09, or 3.4 percent, to $455.99.
(Reporting by Melanie Lee and Emma Graham-Harrison. Additional reporting by Michael Wei; Editing by Anshuman Daga and Robert MacMillan.)