Flickr Creative Commons | McKay Savage

By Brian Womack and Ari Levy | Bloomberg

China is unlikely to allow Google Inc. to provide uncensored Internet search results, potentially forcing the company to close its operations in the country, two people familiar with the matter said.

Google is planning to talk with Chinese authorities in the next few weeks about how it operates in China. Those discussions may result in Google pulling out of the country shortly after that, one of the people said. There is still a chance that Google will strike an agreement with China, the person said.

By leaving China, Google would be giving up access to the world’s largest Internet market. Google will make about $600 million of its revenue in China this year, according to Imran Khan, an analyst at JPMorgan Chase & Co. in New York. Analysts predict the company will have sales of $20.4 billion in 2010, according to a Bloomberg survey.

“There is a high probability that Google.cn will not be allowed to operate in China without its search results being censored,” Khan said in a note to clients. “If Google is not allowed to operate in China, beyond the immediate revenue loss, this could potentially have a far-reaching impact on the company’s overall long-term growth rate.”

Google, owner of the most-used search engine, said yesterday that it would end self-censorship of its product in China after attacks on e-mail accounts of human-rights activists. The Mountain View, California-based company said the move may lead to it closing offices in the country. The series of “highly sophisticated” attacks on Google and at least 20 other companies last month, as well as limits on free speech, led to the decision, Google said in a statement on its blog.

Yahoo! Inc., the second-ranked U.S. search engine, was one of the other companies targeted by the attack in China, according to a person familiar with the matter. Yahoo, which said yesterday that it “stands aligned” with Google in condemning Chinese cyber attacks on users, said today that it doesn’t generally disclose attacks on its computer systems.

“We take appropriate action in the event of any kind of breach,” Yahoo said in a statement.

Matt Furman, a spokesman for Google, declined to comment on Google’s plans for China beyond the statement yesterday. Google said in an e-mailed statement today that it isn’t commenting on specific companies involved in the attack.

Google has trailed Baidu Inc. in China since releasing a censored version of its search engine four years ago. Google would continue to operate at a disadvantage in China because the government favors local competitors, said Clay Moran, an analyst at Benchmark Co. in Boca Raton, Florida.

“The Chinese market is always going to be a struggle for Google,” said Moran, who estimates Google made about 1 percent to 2 percent of its revenue last year from China. “We’re not overly concerned with the potential diminished growth prospects because we felt the market would always pose a significant challenge.”

Google fell $3.39 to $587.09 at 4 p.m. New York time in Nasdaq Stock Market trading. The stock has declined 5.3 percent this year. Baidu’s American depositary receipts rose $52.99, or 14 percent, to $439.48. They have added 6.9 percent this year.

China’s Internet authorities are seeking more information about Google’s intentions, the official Xinhua news agency said, citing an unnamed “high-ranking” official with the State Council Information Office. Wang Lijian, a Beijing-based spokesman for the Ministry of Industry and Information Technology, said he couldn’t comment as he was unaware of the situation. China’s foreign ministry declined to comment.

U.S. Secretary of State Hillary Clinton said the Chinese government should respond to Google’s “serious” allegations.

Separately, Google said today that it boosted security on its Gmail e-mail service. The company said it will encrypt e- mail as it travels between Web browsers and its servers by default. Previously, users had to opt into that service.

Google’s decision to stop self-censorship “lays down the gauntlet to other Internet companies operating in China: to be transparent about what filtering and censorship the government requires them to do,” Kate Allen, Amnesty International U.K. director, said in a statement.

Companies in industries ranging from finance to technology, media and chemicals had been targeted by hackers, Google said. The attacks went after 34 companies, most of them from California’s Silicon Valley, the New York Times reported, citing unidentified people familiar with Google’s investigation.

“Western companies such as Google face a dilemma in China,” said Norbert Pohlmann, a professor and head of the Internet-security research at the University of Applied Sciences in Gelsenkirchen, Germany. “On the one hand, they’re eager to benefit from China’s dramatic economic growth. On the other, they have to deal with local laws and values that are different from the West. Especially for media companies, it’s a tricky issue as China has a different definition of privacy and human- rights.”

Google said it’s notifying other companies that were attacked and is working with U.S. authorities. Adobe Systems Inc., the world’s biggest maker of graphic-design programs, said a “sophisticated, coordinated” attack targeted network systems it managed.

Google said the attack on its corporate infrastructure originated from China and resulted in the theft of intellectual property. The attackers’ main goal was to access the Gmail accounts of Chinese human-rights activists, the company said.

Gmail users who are advocates of human-rights in the U.S., China and Europe have also had their accounts accessed, most likely through phishing scams or malware on the users’ computers, Google said.

“The Chinese have long censored the Web, but this is the first time they have targeted accounts overseas,” Arvind Ganesan, head of Human Rights Watch’s business and human-rights program, said in an interview from Geneva. “If this wasn’t done by the security services, then it was certainly done by a proxy for them.”

With phishing scams, hackers pretending to be legitimate Web sites ask users to divulge confidential information. Malware, meanwhile, includes programs that record users’ keystrokes as they type in passwords.

A departure by Google from China would follow years of clashes over censorship and highlight the challenges global companies face operating in a one-party state that controls the flow of information.

Google and Yahoo were among companies that were criticized by U.S. lawmakers in 2006 for complying with the Chinese government’s restrictions on the Internet. Yahoo co-founder Jerry Yang said in 2005 that a court order obliged the Sunnyvale, California-based company to hand over user records that led to the conviction of a Chinese journalist.

Google is still censoring search results on Google.cn, its Chinese search engine, Courtney Hohne, a Singapore-based spokeswoman, said in an e-mail. “Nothing has changed at all,” she said.

Baidu accounted for 58.4 percent of China’s Internet search market in the fourth quarter, compared with 35.6 percent for Google, according to researcher Analysys International. Baidu declined to comment on Google’s decision.

Google’s plan to stop censoring on its Chinese site “sets a great example” for other companies, New York-based Human Rights Watch said in a statement.

Access to Google’s YouTube video site was blocked in China after Tibet’s government-in-exile released a video on March 20 that it said showed Chinese police beating protesters. The video was described by China’s official Xinhua News Agency as a fabrication.

Last year, China pushed personal-computer makers to install filtering software on their machines. The government backed away from that requirement in June, though it later said it would require the software on computers in schools and Internet cafes.