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Eric Schmidt on Google in China

Google Inc.'s China headquarters in Beijing
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Google Inc.'s China headquarters in Beijing

China today announced its renewed Google's business license, and last night I got some perspective from Google CEO Eric Schmidt on what this means for Google's strategy in the world's largest Internet market.

Schmidt tells me it's very important for Google to be in China, but they'll only operate in China in a way that does not violate Google's fundamental principles ('member that ‘Do No Evil” pledge?).

Google fundamentally opposes censorship, so it's carefully finding a way to make this work: to be in China and play by the Chinese government's rules for non-search businesses, and to run its search engine out of Hong Kong, where it isn't censored.

China's renewal of Google's business license will allow Google to expand its non-search businesses there, like its Android mobile operating system, advertising and maps. Google tells me it plans to clarify in coming weeks which businesses it'll continue to operate — Google's music search is likely — but running Google search in China still is NOT in the cards.

It's crucial to note, the business license allows Google's Web site to keep from going dark. And that Google.cnsite provides a link that allows users to click through to Google's uncensored Hong Kong engine. The importance of this — and the delicate dance with the Chinese government — should not be underestimated.

Losing Google.cnwould have done serious damage for Google's foothold in this crucial market.

What does this mean for Baidu ?

The fact that its stock moved lower this morningindicates that Google's Hong Kong option is expected to steal search marketshare from Baidu, which currently has about 60 percent of the China market.

But that's not what Baidu CEO Robin Li's comments to us earlier this week would indicate.

Li is here in Sun Valley at the Allen & Co. Conferencefor the first time and we caught up with him briefly on Tuesday. He said that Baidu has been in China for ten years and Google's lack of presence there right now doesn't impact Baidu's business. We spotted him early this morning zooming by on a bike — he didn't stop to comment on the latest news.

Schmidt tells me he met with Li here in Sun Valley, but he wouldn't reveal what they discussed.

Schmidt did make a point to note that despite the rivalry over China marketshare, Google invested in Baidu back before it went public and made a nice profit.

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  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.