China sought on Friday to play down a threat by Google Inc to quit the country on hacking and censorship concerns, but the United States said it will formally express concern over the cyber attacks the Internet search giant said originated in China.

A spokesman for China's Commerce Ministry said there were many ways to resolve the Google issue, but repeated that all foreign companies, Google included, must abide by Chinese laws.

Any decision made by Google will not affect Sino-U.S. trade and economic relations, as the two sides have many ways to communicate and negotiate with each other, spokesman Yao Jian told a regular news briefing in Beijing.

We are confident about developing healthy trade and economic ties with the United States.

Yet the U.S. State Department said on Friday it will ask China to explain the attacks.

We will be issuing a formal demarche to the Chinese government in Beijing on this issue in the coming days, probably early next week, U.S. State Department spokesman P.J. Crowley told reporters.

It will express our concern for this incident and request information from China as to an explanation of how it happened and what they plan to do about it, the spokesman added.

A demarche is typically delivered in person by a diplomat oversees to a foreign government to formally protest a policy or action.

The issue risks becoming another irritant in China's relationship with the United States, already strained by arguments over the Chinese currency's exchange rate, trade protectionism and U.S. arms sales to Taiwan.

The United States has backed Google's decision to no longer support China's censoring of Internet searches, and has raised the issue at a diplomatic level.

One senior Obama administration official said it was too soon to tell how economic ties would be affected, but added free information flow was crucial to China's maturing economy.

It seems to me that the principles that Google is trying to uphold are not just important in a moral or rights framework, but are also of very considerable economic importance, senior White House economic adviser Lawrence Summers said.

I think it's too early to assess what all of the effects will be, he added when asked if the dispute would mark a turning point in the U.S. economic relationship with China.

Washington has long been worried about Beijing's cyber-spying program. A congressional advisory panel said in November that the Chinese government appeared increasingly to be penetrating U.S. computers to gather useful data for its military.

Playing down the concerns raised by Google, rival Microsoft Corp said it had no plan to pull out of China.

I don't understand how that helps anything. I don't understand how that helps us, and I don't understand how that helps China, said Steve Ballmer, CEO of the world's largest software maker.

Microsoft has high hopes for its Bing Internet search engine in China, which has only a small share of the market but could benefit if Google, the No. 2 player behind dominating local rival Baidu Inc, pulls out.

China's population of Web users grew to 384 million by the end of 2009, a jump of nearly one-third in one year, an official report showed on Friday, underscoring the growing scope and business allure of the country's Internet.

INTERNET FREEDOM

U.S. Deputy Assistant Secretary for East Asian and Pacific Affairs David Shear met a Chinese diplomat in Washington on Thursday to seek an explanation about the cyber-attacks and censorship.

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For Reuters Insider TV on the Google v Baidu rivalry, see: http://link.reuters.com/vup33h

For a related TIMELINE Graphic, see:http://graphics.thomsonreuters.com/0110/CN_GGL0110.gif

For a Graphic on China market share, see:http://graphics.thomsonreuters.com/119/CN_BAIDUG1109.gif

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A U.S. official said Shear received no reply from China.

China has defended its censorship, and Chinese media are stressing that foreigners must abide by Chinese laws.

China is a sovereign country, not a 19th century (colonial) concession, and foreign businesses don't have legal extra-territoriality, Jin Canrong, a China-U.S. relations scholar at Beijing's Renmin University, told the Global Times.

To want to do business in China while remaining beyond the bounds of Chinese law is to misread 21st century China.

Most of the filters on Google.cn were still in place on Friday, though controls over some searches, including the June 4, 1989 Tiananmen crackdown, appear to have been loosened.

The spat has ignited heated debate among Internet users in China, with some viewing it in strongly nationalist terms and others lamenting the company's possible passing.

I feel I can no longer breathe in this China which is more and more controlling. We are only 50 meters away from North Korea and Iran, wrote Budabuxiangshi on the Global Times' website (www.huanqiu.com)

Google said on Tuesday that in mid-December it detected an attack on its corporate infrastructure originating from China that resulted in the theft of its intellectual property. It said that more than 20 other companies had been infiltrated, although cyber experts say 34 firms were attacked.

Yahoo Inc was among the U.S. companies targeted by the attacks and discussed them with Google prior to the company's announcement this week, a person familiar with the matter said. And Juniper Networks confirmed on Friday earlier suggestions it was a victim of the attack.

Security firm McAfee Inc said the recent cyber-attacks exploited a previously unknown flaw in Microsoft Internet Explorer browser.

Microsoft later sent out an advisory to help users mitigate the problem. It is still working on a patch that would solve it.

But Microsoft's CEO downplayed the hacking attacks.

There are attacks every day. I don't think there was anything unusual, so I don't understand, Ballmer said. We're attacked every day from all parts of the world and I think everybody else is too. We didn't see anything out of the ordinary.

(Additional reporting by Chris Buckley, Lucy Hornby, Liu Zhen and Huang Yan in Beijing, Melanie Lee in Shanghai, Jeff Mason and Paul Eckert in Washington and Jim Finkle and Bill Rigby in Boston; Editing by Benjamin Kang Lim and Philip Barbara)

China Steve Ballmer Down Google