Baidu remains far and away the No. 1 search company in China. Google, a latecomer to the Chinese market, has made a big push in the country this year, but so far it hasn't made a dent in Baidu's lead. According to Beijing-based research firm Analysys Intl., Baidu has 44% market share, compared to just 13% for Google. Yahoo Chinaowned by Chinese e-commerce company Alibaba, in which Yahoo! (YHOO) owns a 40% shareis No. 2, with 21%.

Now comes news that the competition for the Chinese search market is likely to get even tougher. Google has owned a small share in Baidu since purchasing 2.6% of the Chinese company before Baidu's Nasdaq initial public offering in August last year. And some thought that Google's position was a first step in an eventual acquisition. The rivalry between the two companies has only increased, though. On June 20, Google seemed to put to rest any possibility of a deal by registering to sell its Baidu stake within the next 90 days.

Being an also-ran in China may be a blow to the egos of founders Sergy Brin and Larry Page, but it's not going to have much impact on Google's fortunes in the short term. The Chinese search market is still very small, with total revenue last year of about $140 million, says Richard Ji, an analyst with Morgan Stanley (MS) in Hong Kong.

"Last year, Google generated 25 times more revenue than the entire Chinese paid-search industry," he says. Still, with more than 110 million people using the Internet, China has more people online than any country except the U.S. And the industry is growing. Ji expects compound annual growth rate of 50% over the next three years.

So does China matter? Sure. And in a country where the government is still leery of the Internet and the ability of citizens to access taboo information online, the two rivals have taken very different approaches regarding censorship.

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