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Google This

|Includes: Baidu, Inc. (BIDU), GOOG

Google’s (NSDQ: GOOG) founders may wear t-shirts and pose for publicity photos while playing with Lego pieces, but they have two characteristics that the average teenager does not. They lead one of the best-known companies on earth, and have access to the best advise money can buy. The welter of speculation about Google exiting China borders on moronic.

For starters, no company can afford to bypass the potential of over USD10billion in long-term revenue. Google is simply playing the game that companies play with governments the world over: “give me some to give you some.”

The truth is that Google is good for China and vice versa. Accordingly, some sort of compromise is the most likely outcome, an outcome that will upset only the hardcore Lego aficionados.

Google controls around 30 percent of China’s market; with more growth on the horizon, the company’s real motives are likely divorced from censorship issues.

That being said, Google has shifted its strategy since the head of its Chinese operations left the company last year. Industry observers have suggested that the US headquarters will control the decision-making process directly, as well as operations in China.

If such a shift materializes, the previous strategy of “localization” would be reversed, forcing Google to give up some of its gains on local search back to its Chinese competitors such as Baidu (NASDQ: BIDU).

It may well be that Google has decided that it wants to change its strategy altogether in China, and the government’s shortcomings can always be used as an excuse and cover at the same time.

While people worry about Google and investing in China, the country’s trade growth increased in December to 17.7 percent year over year, easily surpassing consensus estimate of 5 percent. This was the first positive reading since November 2008 and was coupled with huge import growth of 55.6 percent. The trade surplus was at USD18.4billion--another strong reading.

I’ve noted on innumerable occasions that any positive contribution from exports will only add to the Chinese economy’s growth in 2010. And although one shouldn’t expect double-digit growth in exports for the rest of the year, the momentum should be enough to allow China to grow its gross domestic product (NYSEMKT:GDP) by 10 percent. Ports are a good way to play a revival to Chinese exports; my favorite is Dalian Port (HK: 2880, OTC: DLPTF).



Disclosure: no positions