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This column originally appeared in Forbes.

Google's (NASDAQ:GOOG) beef with China's government is making international headlines again. The company's Chinese license as an Internet content provider is up for renewal this week, and the government has made it clear it won't accept Google automatically forwarding Web surfers to an uncensored search engine in Hong Kong, as the company has done since January. In response, this week Google started sending surfers to a landing page where they have to click manually to get to the Hong Kong site, in hopes that that will placate the government.

That is actually quite similar to what Chinese Web surfers could do before January. Until then, they could choose to conduct searches via the censored domestic Google.cn site or navigate from a link on the Chinese site to Google.com, which wasn't censored by Google itself but was still subject to the filters in China's firewall. That was a concession reformers in China had worked out.

China today is nothing like the old Soviet Union. Despite Google founder Sergey Brin's fears, compromises can be made between companies and the government, but companies still need to follow the law. In the end, Google decided it couldn't live with the deal it had struck and decided to stop censoring its own China-based site, which led to its first confrontation with the government and ultimately its decision to effectively shut down Google.cn.

The ball is now in China's court. How should the Chinese government act? If it wants to, it can reject Google's license application and shut down the operation completely, but should it? Should it allow the current situation to continue and allow Chinese Web users to manually click through to Hong Kong? Or maybe demand something else?

China's leadership needs to be very measured in how it responds to Google in the next few days. With the world already concerned about the yuan exchange rate and China's economic strength relative to America's stalled economy, the government should take this opportunity to act calmly, as a responsible member of the international community. If not, it could provoke trade protectionism, and that would help nobody.

The smart move would be to delay making any decision on Google's license approval until the issue dies down again in the overseas press. It should neither approve nor deny for the moment, but let the status quo continue. In the last six months Chinese netizens searching on the Hong Kong site have caused no security threat to China . After all, the Great Firewall can block any sites the government really wants to limit access to.

In other words, it just isn't worth it to block Google now or even make a decision, because the international outcry could be too great. Moreover, fewer and fewer Chinese are going to Google anyway. My firm, China Market Research Group, has done research with 5,000 consumers in 15 cities that suggests only 12% of Chinese-language searches are actually done on Google, because most users find that Baidu (NASDAQ:BIDU) yields far better Chinese-language results. Most Chinese who use Google use it for foreign language searches. They tend to be better-educated people who have opportunities to travel abroad, where they can access unfiltered information anyway.

If China continues to be measured in its response to Google, as it has since January, the benefit will be twofold: It will show the outside world that it can deal with potentially inflammatory situations in a reasonable, non-kneejerk way, and it will allow Chinese users who want to use Google to continue to do so. The government's relatively calm approach over the last half year has earned support from the Chinese populace, which wants access to Google's technology but remains extremely sensitive to external criticism and perceived interference in China's domestic affairs.

My firm's research suggests that the overwhelming majority of Chinese support the government so far in its response to Google, because although they appreciate Google's stand for more open information flow they also feel it went too far in its criticism of the country's leadership. Real change needs to be seen as coming from within, from domestic Chinese Internet firms like Tencent QQ, Baidu, Sina (NASDAQ:SINA) and Sohu (NASDAQ:SOHU)--not from foreign companies, which are sometimes seen as acting in the interests of foreign governments.

From a competitive standpoint in China, Google has shot itself in the foot anyway. Baidu has strengthened its lead in three key areas. First, it has recruited the best people. The exodus of talent from Google to other firms has been shocking. Few good Chinese executives are willing to work for the American company now, because they feel uncertain about career prospects there. Second, more and more companies have been allocating their digital media advertising spending to Baidu, because they fear Google might be shut down. It's hard to launch a long-term marketing campaign with a site that could be stopped at any time. Third, business partners like China Telecom have made it clear they won't cooperate with Google unless it adheres to Chinese law.

A decision to delay a response about whether Google is in compliance with its laws would not threaten China's internal security and stability, would not cause a loss to its prestige and could serve to improve the country's image both domestically and internationally. A kneejerk reaction would do nothing to help China--and could hurt it.

Disclosure: No positions

Source: How China Should Deal With Google