Google's (GOOG) dramatic decision to shutter its China-based search engine and redirect users to its Hong Kong-based site drew praise from human rights activists, but few experts believe the move will prod the government to relax its censorship of the search engine. In fact, China has already been blocking politically sensitive searches on the Hong Kong site, one expert said.

In a blog post announcing the closure of its China-based site, Google.cn, the search giant acknowledged that negotiations with the Chinese government had reached a stalemate. As David Drummond, Google's top lawyer, noted, "the Chinese government has been crystal clear throughout our discussions that self-censorship is a non-negotiable legal requirement."

Drummond added that "this new approach of providing uncensored search in simplified Chinese from Google.com.hk is a sensible solution to the challenges we've faced -- it's entirely legal and will meaningfully increase access to information for people in China."

Chinese Censorship Continues

But just hours after Google redirected Chinese users from Google.cn to Google.com.hk, China was already censoring politically sensitive searches coming from the site, according to Rebecca MacKinnon, an expert on technology in China.

"My understanding from people in China is that they can access Google.com.hk if they're searching for noncensoring terms," MacKinnon tells DailyFinance. "The censorship is happening at the Chinese network level. They're not blocking the entire site. They're just filtering specific searches like 'Tiananmen Square' and 'Falun Gong.'"

In other words, not much has changed for the average Chinese Internet searcher. "The ball is now in the Chinese government's corner," Mackinnon says. "The question is, [is] China going to unleash extra-legal consequences on Google?" Google says it intends to continue research and development work in China and also to maintain a sales presence there.

Google is a powerful company, but it's simply no match for the communist government of the world's most populated country. And that government has remained steadfast in its control of the flow of information in order to suppress dissent and maintain its grip on power.

"Unless somebody can convince them that they have a chance of staying in power without censoring the internet, those restrictions will remain," MacKinnon says. "To openly allow an uncensored Web service in China, the government would have to completely change the entire trajectory it has been on for the last decade, since the Internet appeared in China."

China Blasts Google, US 'Disappointed'

That looks extremely unlikely. In fact, the Chinese government quickly lashed out at Google, saying its actions were "totally wrong," according to Xinhua, the Chinese state news agency. Meanwhile, the U.S. government expressed disappointment that the two sides couldn't reach an agreement.

In a statement released after Google's announcement Monday, National Security Council spokesman Mike Hammer said the Obama administration is "disappointed that Google and the Chinese government were unable to reach an agreement that would allow Google to continue operating its search services in China on its Google.cn website."

Meanwhile, Leslie Harris, president and CEO of the Center for Democracy & Technology, issued a statement praising Google "for following through on its commitment to protect human rights and for its continued effort to enable China's people with unfiltered access to robust sources of information from all over the world."

"Whether the Chinese people will be able to take advantage of Google search now rests squarely with the Chinese government," Harris said. "If China allows access to unfiltered search, it will be a substantial win for global Internet freedom and for the Chinese people. If China blocks access, it will finally make clear to the Chinese people who is pulling the levers of censorship in the country."

Larger Implications for Western Firms in China

From a short-term business point of view, Google's decision will have little impact on its bottom line. Its Chinese business constitutes just over 2% of its annual sales, and the company continues rapid sales growth in the U.S. and elsewhere in the world.

"In terms of a near-term impact on the financial model, we see limited impact even if Google.com.hk is blocked by the Chinese authorities (something we see as likely, at least sporadically)," Ben Schachter, an Internet analyst at Broadpoint AMTech wrote in a note to clients Monday.

"However," Schachter continued, "investor sentiment and the longer-term potential of China will be impacted by Google's decision not to censor results. The headline risk will continue around this issue as investors will now monitor the Chinese government's response to this change."

Ian Bremmer, president of the Eurasia Group, a geopolitical research firm, was more blunt.

"Google loses," Bremmer told DailyFinance by email. "The ball's now in China's court as to how they want to proceed. Is technology broadly going to become effectively a strategic sector where Chinese firms dominate? That's the direction it's headed."

Bremmer suggested that Western businesses that fail to play by China's rules could end up on the side of the road as the country continues its rapid growth. "With 1 billion plus people, that's the biggest omelette the world has ever seen," he said, alluding to the old joke about needing to break eggs to make an omelet. "Consider Google the first of many eggs."

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