In early 2010, Google (NASDAQ: GOOG) pulled out of mainland China. Fast forward to this week, and it has been reported by The New York Times that Microsoft (NASDAQ: MSFT) - the current #2 in online search with its Bing search engine - has reached an agreement with Baidu.com, China's largest incumbent search engine, to offer English search results.

Baidu, previously primarily a Chinese-language search engine, made the announcement Monday afternoon, saying Microsoft’s search engine, Bing, was expected to appear on Baidu’s Web pages by the end of this year.

Baidu, which dominates Chinese-language search services here with about 83 percent of the market, has been trying for years to improve its English-language search services because English searches on its site are as many as 10 million a day, the company said. Now it has a powerful partner.

"More and more people here are searching for English terms,” Kaiser Kuo, the company’s spokesman, said Monday. “But Baidu hasn’t done a good job. So here’s a way for us to do it.”

Though Google is still available in mainland China, this offers Microsoft quite an advantage:

[L]ately, Google’s search engine and its e-mail service, Gmail, have become more difficult to connect to on the mainland. The company, which is based in Mountain View, California, has blamed the Chinese government for interfering with its operations

For Microsoft, it could be an opportunity. In a statement released Monday, Shen Xiangyang, Microsoft’s senior global vice president, said: “Bing’s cooperation with Baidu will allow the vast Baidu users to receive better English search experiences and results” and allow more Chinese users to experience Bing.

Bloomberg reports on Chinese local analyst views of the agreement:

“This is not good news for Google,” said Jake Li, who rates Baidu shares “accumulate” at Guotai Junan Securities in Shenzhen. Most Chinese Internet users currently prefer Google’s English-language search results over Baidu, whose service will be improved by the partnership with Microsoft, he said.

Covestor models that hold MSFT as of 7/4 include:

• Core Holding by Vista Investment Management
• Eagle Portfolio by Green Valley Wealth
• Net Payout Yields by Stone Fox Capital
• Large Cap Core Equity by ASB Capital
• Relative Value by Quantemonics
• S&P 500 Best of Breed by Conrad Leifur
• Fortune 100 by Philip Dhingra
• Domestic Dividend by Harvest Financial Partners
• Hedged Equity by Swan Asset Management
• Suncoast Equity by Suncoast Equity Management
• BEM Absolute Return by Blank Equity Management

Sources:

"Microsoft to Partner With China’s Leading Search Engine" New York Times, 7/4. http://www.nytimes.com/2011/07/05/technology/05microsoft.html?partner=rss&emc=rss

"Microsoft, Baidu to Expand Web-Search Alliance" Bloomberg, 7/4. http://www.bloomberg.com/news/2011-07-04/microsoft-baidu-reach-agreement-for-search-engine-in-china.html