What Will The Google Announcement Mean to Your China Portfolio?

About: (Google, GOOG, Baidu, BIDU, China Stock Digest, David Drummond, Corporate Development and Chief Legal Officer of Google, Chinese economy, China Economy, DANONE Dairy)

Bookmark and Share

Google's sudden decision to potentially pull out of the immense China market is a decision with enormous ramifications for China investors.

In a stunning announcement, David Drummond, Corporate Development and Chief Legal Officer of Google, said the company is not willing to continue filtering search results on its google.cn Chinese search website. Drummond wrote in an official Google blog, "We will be discussing with the Chinese government the basis on which we could operate an unfiltered search engine. We recognize that this may well mean having to shut down google.cn."

A shutdown is almost certain to follow as Google has released unfiltered dissident images and writings within its search results in China. Google had been heavily criticized in the west for its cooperation with the Chinese government.

Politics are not our affair and we will stay well clear of the perceived rights and wrongs in this dispute. It is virtually certain that Beijing will insist on control of certain content on the web and that Google will not be allowed to continue operating in China as it pleases.

Despite its dominance in the west, Google had never attained anything approaching search engine supremacy in China. Google will likely lose approximately $600 million annually in revenues from the China market as well as any future gains it night have made from the dominant Chinese search engine, Baidu (BIDU).

Baidu shares jumped more than 11 percent on the news, and they may go higher if Google ultimately confirms its departure from competition with Baidu.

Some China investment analysts have consistently recommended talking a stake in the Chinese economy, but only through known western corporations and brand names which are trying to penetrate the market. But as the Baidu example demonstrates, Chinese branded investments will generally be safer as a China play than know western brands.

China is very strict and very protective of its national sovereignty and wary of the behavior of foreign companies within its borders. As familiar western companies like DANONE Dairy products have discovered in China, the game is played differently on the mainland, and giant western multi-nationals do not always automatically win the race for survival and supremacy.

We nave never advocated investing in China through western firms and brands, and the examples of these two companies explain why we clearly prefer pure China plays at the China Stock Digest. Again, we take no position on the politics or the morality involved in this decision.

We are invested in making our clients money, not in standing on a soapbox. Therefore we will continue to recommend purely Chinese companies, traded as ADRs in New York or as publicly traded stocks in Hong Kong.

We do not and will not advocate western proxies for entry into the China market. The cultural differences and too wide. Those differences create a new and unpredictable element of risk for our investors.

Google's announcement proved that very vividly today.

(PS: We have not recommended Baidu in the past merely because of its extremely high P/E multiple)

For more information about China Stock Digest, visist www.chinastockdigest.com. To see the latest special offer from China Stock Digest, visit: http://www.chinastockdigest.com/subscribe-now/china-stock-digest-subscribe-now.html

Committed To Your Profits In China,

Jim Trippon

Editor

China Stock Digest http://www.chinastockdigest.com