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Google is to make changes to its censored Chinese search engine a “short time from now” but still wants to remain in China, the company’s CEO Eric Schmidt has said.

In his first remarks since his company threatened to pull the plug on its Chinese search engine unless it was allowed to operate uncensored, Google CEO Mr Schmidt appeared to hint at a possible deal that would allow Google to remain in China in some form.

“We made a strong statement that we wish to remain in China,” said Mr Schmidt in a conference call with financial analysts after Google posted its fourth quarter result for 2009.

“We like the Chinese people, we like our Chinese employees. We like the business opportunities there, but we’d like to do that on somewhat different terms than we have but we remain quite committed to being there.” “This is good news for digital marketing companies who generate business through advertising on Google.

Google has continued to censor searches according to Chinese law on its search engine since it delivered its ultimatum to the Chinese almost 10 days ago, but Mr Schmidt added this would soon change.

“Our business in China is today unchanged,” he said. “We continue to follow their laws, we continue to offer censored results. But in a reasonably short time from now we will be making some changes there.”

Mr Schmidt refused to provide any further details, beyond confirming that Google was “in conversation” with the Chinese government. However sources at Google said there were no plans to back-track over its stand on censorship.

Industry analysts have speculated that Google might instead be able to broker a “middle ground” deal with the Chinese government that would see it shut down its search facility whilst maintaining other services that didn’t clash with the censorship regime.

Mathew McDougall, chairman of Sinotech, one of China’s largest online market agencies, said that under this scenario Google would be free to concentrate on delivering core services such as Gmail, Gtalk, Google maps and the “analytics” software which many companies and search marketing firms rely on for business and website traffic feedback.

“It’s still too early to make firm predictions, but you could read these comments as a reiteration to Chinese negotiators that Google is very serious about not abandoning its other businesses in China,” he said.

China has so far made no comment on the Google negotiations, beyond confirming that foreign internet companies operating in China must act “according to law”, a statement which was read as a firm commitment to maintaining censorship.

However it is far from clear that China’s leaders – having been so publicly upbraided by Google – would be prepared to allow the company to remain in China to pursue non-controversial business interests.

The company currently finds itself in limbo in China, deciding earlier this week to postpone the launch of two smart-phone handsets running its Android mobile operating system, a key plank in Google China’s growth strategy for China’s online search market.

Google’s stand over censorship has won strong support from the Obama administration which has called on China for an “explanation” over Google’s allegations that China-based hackers attempted to gain access to the email accounts of Chinese human rights activists.

In a keynote speech on the importance of internet freedoms for the global economy, the US Secretary of State Hillary Clinton warned that big business must “consider what’s right, not what’s simply a quick profit” when doing business with restrictive regimes.

“At Google we are great believers in the value to society of unfettered access to information,” the company said in a statement, adding that it would work with governments, human-rights organizations and bloggers to promote free expression and increased access to information.