CHINA: Google tweaks China site in bid to keep license

(Reuters) - Google Inc is tweaking its China website in a last-ditch effort to save its search business in the world's largest Internet market after butting heads with Beijing over Web censorship.

The google.cn search site will stop automatically redirecting users to Google's uncensored search portal in Hong Kong -- instead, visitors will be required to click a link to access the Hong Kong site, Google said on Tuesday.

The move comes ahead of a Wednesday deadline for China to renew Google's operating license. Google said Beijing had made it clear it was unhappy with the company's three-month old system of re-routing Chinese Web surfers to google.com.hk.

"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," Google Chief Legal Officer David Drummond wrote on the company's corporate blog.

"Without an ICP license, we can't operate a commercial website like Google.cn so Google would effectively go dark in China," he wrote.

There was no immediate comment from China. Google shares were down 3 percent by early afternoon trading, in line with the Nasdaq stock market's fall.

The website tweak is Google's latest attempt to strike a delicate balance between standing up to China's policy of Internet censorship while maintaining a presence in a market considered key to its future growth.

Google's shares have fallen roughly 23 percent since the company announced its intention in January to stop censoring search results in China.

"It seems like investors have already taken China out of the valuation of the company. I don't think there's much more incrementally negative for the stock," said UBS analyst Brian Pitz.

CHINA SILENT

Google, which battles Baidu for China's 380 million Internet users, said in January it might quit the country over censorship and after it was hit by a hacking attack that it said came from within China.

But after keeping its promise to end self-censorship by automatically rerouting users to its Hong Kong site, Google now seems reluctant to abandon the Chinese market entirely.

"China, with its business potential, is a hard market to give up," said Cao Jun Bo, analyst at Beijing-based technology research company iResearch.

It is unlikely Google would have moved without some blessing from Beijing, and there certainly would have been negotiations about the change, said Cao.

China's foreign ministry on Tuesday declined to comment on Google's decision to end automatic rerouting, but Drummond said he hoped it would be acceptable to the Chinese government.

A Google spokeswoman declined to comment further on the details of negotiations with Beijing.

Google's challenge to China's online policies has provided a new source of tension to Sino-US relations. The State Department has backed Google and demanded that China explain the alleged hacking attacks.

The new google.cn page has an image of the Google logo and a non-functioning search box. A short message says, "We have already moved to google.com.hk" and "Please save our new website." Clicking on much of the page redirects users.

If accessed from China, the Hong Kong search engine does not offer unfettered access to information the government wants blocked as domestic firewalls prevent connections to many websites that Beijing objects to.

The Google.hk.com site is also periodically unavailable from mainland China, and searches can be unstable.

LUCRATIVE MARKET

Analysts estimate Google's China business is a modest 1 percent to 2 percent of its $6.5 billion in annual net profit, but the country had been considered a major long-term growth opportunity.

Besides Web search, Google has other operations in China, such as the Android mobile operating system.

China Mobile has released smartphones into the China market using Android, and Credit Suisse analyst Wallace Cheung expects Android to one day become the most popular mobile operating system in China.

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 Chinese government.

It has seen an exodus of executives from its China operations, as well as from partners under its advertising AdSense 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 three other licenses for Google business units in China are due for renewal in June.

(Reporting by Melanie Lee and Emma Graham-Harrison; Additional reporting by Michael Wei in Beijing and Alexei Oreskovic in San Francisco; Editing by Anshuman Daga and Robert MacMillan.)

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RUSSIA: Putin says U.S. police "out of control" in spy case

(From L to R) Russian spy suspects, Anna Chapman, Vicky Pelaez, Richard Murphy, Cynthia Murphy and Juan Lazaro, are seen in this courtroom sketch during an appearance at the Manhattan Federal Court in New York June 28, 2010. The arrests -- days after a warm Washington summit between President Barack Obama and Russian President Dmitry Medvedev -- thrust a Cold War-style spy scandal into the midst of the U.S. leader's ''reset'' of long-strained ties with the Kremlin.  Credit: Reuters/Jane Rosenburg

(Reuters) - Moscow angrily rejected U.S. accusations on Tuesday that Washington had cracked an undercover Russian spy ring, and said the Cold War-style cloak and dagger saga seemed timed to wreck a recent thaw in relations.

Prime Minister Vladimir Putin said U.S. police had gone "out of control" after 10 suspected spies were arrested in the United States in the biggest espionage case for years.

"I hope that all the positive gains that have been achieved in our relationship will not be damaged by the recent event," he told visiting ex-U.S. President Bill Clinton.

An 11th suspect was arrested in Cyprus on Tuesday and was released on bail, police on the Mediterranean island said.

The suspects, some of whom lived quiet lives in American suburbia for years, were accused of gathering information ranging from data on high-penetration nuclear warhead research programs to background on CIA job applicants.

The arrests came days after a warm Washington summit between President Barack Obama and Russian President Dmitry Medvedev, part of what the U.S. leader describes as a "reset" of long-strained ties with the Kremlin.

"The choice of timing was particularly graceful," Russian Foreign Minister Sergei Lavrov told journalists sarcastically during a trip to Jerusalem.

Other Russian officials also suggested the timing was no coincidence.

"We do not understand what prompted the U.S. Justice Department to make a public statement in the spirit of Cold War espionage," the Foreign Ministry said, calling the accusations baseless.

It said lawyers and diplomats should be given access to the suspects.

"We deeply regret that all of this has happened against the background of the relations reset declared by the U.S. administration itself," the ministry said in a statement.

With buried banknotes, coded communications and other cinematic details, the accusations echoed spy scandals of the 20th century and the more recent chill in relations with a Kremlin which, under the 2000-2008 presidency of ex-KGB spy Putin, often accused the West of trying to weaken Russia.

Britain and Ireland both said they were checking reports suspects had traveled on false passports from their countries.

Moscow has repeatedly accused Western powers of maintaining spying operations against Russia despite the end of the Cold War. Western powers also complain of Russian activity, especially in the commercial and scientific areas.

BLOW TO OBAMA

Russian analysts said the timing suggested it was an attempt to undermine the "reset" which Obama's administration has hailed as a major foreign policy achievement, citing Moscow's support for sanctions against Iran and cooperation on Afghanistan.

"It's a slap in the face to Barack Obama," said Anatoly Tsyganok, a political analyst at Moscow's Institute of Political and Military Analysis.

He predicted Russia would follow Cold War etiquette and uncover an equal number of alleged U.S. spies.

Military analyst Alexander Golts said the scandal would be unlikely to deal a major setback to ties. Obama's administration would aim to "soft-pedal the situation" to avoid damage to improved relations it sees as a foreign policy success, he said.

Tatyana Stanovaya, political analyst at Moscow's Center for Political Technologies, said the accusations could widen a rift in Russia's elite between advocates and opponents of better U.S. ties, with the scale of the response hinting at who is ascendant.

Stanovaya said it could dent the authority of Medvedev, who is struggling to emerge from Putin's shadow and has made engagement with Washington a hallmark of his presidency.

The U.S. Justice Department accused the 11 people of operating as "illegals"; the term applied in the intelligence world to agents infiltrated under false identities, rather than officers who use diplomatic or other legitimate cover.

They were accused of collecting information ranging from research programs on small-yield, high-penetration nuclear warheads to the global gold market, and seeking background on people who applied for jobs at the Central Intelligence Agency (CIA), according to criminal complaints filed in a U.S. court.

Authorities said 10 were arrested on Sunday in Boston, New York, New Jersey and Virginia on charges including conspiracy to act as unlawful Russian agents and money laundering.

They sought to "become sufficiently 'Americanized' such that they could gather information about the United States for Russia and can successfully recruit sources who are in, or are able to infiltrate, United States policy-making circles," court papers said.

The U.S. Justice Department said they received extensive training in coded communications, how to evade detection and how to pass messages to other agents.

After the 2001 arrest of FBI agent Robert Hanssen, accused of selling secrets to Moscow over 15 years and sentenced to life in prison, Washington expelled four Russian diplomats and ordered 46 to leave the country. Russia responded in kind.

In 2006, Russia accused British diplomats of running a James Bond-style spy ring and communicating with agents via an electronic device disguised as a rock. The next year, British officials said Russian spying was "at Cold War levels."

(Additional reporting by Dmitry Zhdannikov and Amie Ferris-Rotman; Writing by Conor Humphries and Steve Gutterman; Editing by Peter Graff)

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