Google's ability to operate any kind of Internet business in the world's largest market hangs in the balance as China weighs whether it will renew Google's Internet license, which officially expired June 30.

China has expressed dismay at Google's rerouting of search traffic to an uncensored site in Hong Kong, but has not yet disclosed whether it will try to shut down Google in China. "Given that they've not said anything so far, it probably indicates that decisions at fairly high levels are involved and that [the Chinese government] understands that whatever decision gets made is going to get a lot of attention globally and will send a signal that goes well beyond China's relationship with Google," says Rebecca MacKinnon, a China Internet expert and a visiting fellow at Princeton University's Center for Information Technology Policy.

"Their inclination will be to punish Google so that everybody stays in line," MacKinnon adds. "But on the other hand, not renewing the license would send a broader signal about just how open the market is, or isn't, in China. You've got President Hu Jintao getting ready to travel to the U.S. for a summit. A refusal of Google's ICP [Internet Content Provider] license would certainly add to the pile of negatives in the relationship, so I imagine they are weighing that."

In January, Google announced that, along with several other companies, it had been the target of sophisticated cyber espionage originating from China--and that it would stop censoring search results related to a variety of political topics, as China requires of all Internet companies operating in the country. The company followed through on March 22, when it began redirecting visitors from Google's China site, google.cn, to google.com.hk, its Hong Kong-based site, where Google offers uncensored search in simplified Chinese. (Some search terms are still blocked by Chinese network filtering.)

China called this approach "unacceptable," and last week, with the ICP license renewal looming, Google shifted gears. It made Google.cn a landing page that seems to offer the usual field to enter search terms--but clicking anywhere on the page takes visitors to Google.com.hk. "This new approach is consistent with our commitment not to self censor and, we believe, with local law," Google's senior vice president and chief legal officer, David Drummond, wrote in a June 28 blog post. "We are therefore hopeful that our license will be renewed on this basis so we can continue to offer our Chinese users services via Google.cn."