Google Losing Ground in China

Following reports yesterday that Google’s services in China were facing challenges, news comes today that the company and its subsidiaries in China are being investigated for tax evasion. From MarketWatch:

Chinese tax authorities have found three local companies owned by U.S. search giant Google Inc. engaged in “tax-related illegal behavior,” the Economic Daily newspaper reports Thursday, citing “relevant departments.”

A Google spokeswoman confirmed Google owns the companies.

The company said in a statement: “We believe we are, and always have been, in full compliance with Chinese tax law.”

The problems at the “Google enterprises in China” included using fake receipts and reporting unrelated spending as costs, such as for massages, and involved a total tax value of more than 40 million yuan ($6.1 million), the newspaper reports.

The three companies are Google Information Technology (China) Co., Google Advertising (Shanghai) Co., and Google Information Technology (Shanghai) Co., the paper reports.

The Wall Street Journal also reports on Google’s apparent demise in China:

The developments are the latest signs that significant parts of Google’s business in China, home to more than 450 million Internet users, have been unraveling since last March. It was then that Google replaced its self-censored China search service with an unfiltered version based in Hong Kong, citing censorship and cyberattacks that the company said were traced to Chinese hackers.

The company’s share of search market revenue in China dropped to 19.6% last quarter from 35.6% a year earlier, or just before Google’s announcement, according to research firm Analysys International.

Chinese rival Baidu Inc. has thrived in the wake of weakened competition from Google, increasing its share of search market revenue to 75.5% in the fourth quarter from 58.4% in the last three months of 2009, according to Analysys.

Meanwhile, Android phones shipped officially in China from Motorola Mobility Holdings Inc. come pre-installed with links to search products by Baidu and Microsoft Corp.’s Bing, but not Google.

Yet a Google representative insists the company is still competitive, and expanding, in China, BBC reports:

Google says reports of its pulling back from China have been ‘greatly exaggerated’, as a deadline looms for its mapping service to continue in the country.

“Stories of Google’s withdrawal from China are greatly exaggerated,” said Andrew McGlinchey, Head of Product Management for South East Asia.

He added that Google was actually expanding its offices in the country.

Google has previously faced censorship issues and cyber attacks in China.

See also a Xinhua report about Google’s tax evasion charges.