BEIJING - Google Inc jolted investors and China this week by threatening to quit the Communist Party-run nation over censorship and hacking, and both sides are tight-lipped about what they expect to happen next.

Here is an explanation of what may happen.

The most likely outcome seems to be that Google will shut its Chinese-language Google.cn website, while Beijing seeks to minimise commercial and political fallout from the feud by saying the company quit because it was unwilling to abide by local laws.

WHAT GOOGLE SAYS IT WANTS TO HAPPEN

Google has said it will not enforce Chinese censorship, which blocks swathes of content offensive to the ruling Communist Party, from pornography to commentary critical of the party.

Google has also said it wants to discuss those restrictions and find a solution allowing it to run an unfiltered search engine for China's 360 million Internet users. It also warned that any discussions could well fail.

WHAT THE CHINESE GOVERNMENT SAYS IT WANTS
The Chinese government has avoided directly addressing Google's complaints, and so far has also avoided directly reacting to criticism of its censorship by the U.S. Secretary of State, Hillary Clinton, and the White House.

On Friday, a Chinese commerce ministry spokesman, Yao Jian, said there were ways to solve the Google dispute but did not elaborate.

Some analysts have suggested Google could accept a solution where it lifts self-censorship from Google.cn but allows Beijing to censor through its own firewall of blocking technology.

COMPROMISE UNLIKELY

But compromise is unlikely. The Chinese commerce ministry spokesman, Yao, also said all foreign companies, including Google, must obey the country's laws. In the government's eyes those laws include censorship of the Internet -- including by firms themselves -- that Google has said it will not accept.

Chinese officials from President Hu Jintao down have said the state must control the Internet to keep out a dangerous torrent of pornography and other offensive images and ideas.

The tangle of agencies regulating China's Internet have competed among themselves to find new ways to enforce censorship.
Late last year, China jailed the prominent dissident Liu Xiaobo for 11 years, largely for essays critical of the Party that he published on overseas websites.

None of that suggests China will give way to Google.

SIGNS POINT TO GOOGLE PULL-OUT

Both sides seem to be waiting for the other to make the next move, perhaps so they can avoid any blame for further fallout.

By staying poker-faced in the face of criticism from Google and Washington, China is perhaps seeking to avoid inflaming the dispute that could exacerbate strains over trade and currency.

Beijing is likely to avoid the volatile step of shutting down Google.cn, which would be sure to stir an international outcry.

So far, Google has not lifted censorship on its China-based website, and may want to avoid the potential problems that could threaten it and its staff if it did.

There may thus be a standoff for days, perhaps weeks, while each side waits for the other to act.
With China not likely to compromise on censorship, Google could eventually announce it wasn't able to resolve its complaints with Beijing and shut down its Google.cn site.

Greater uncertainty surrounds what will happen to Google's other stakes in China, including its Android platform, an open source mobile operating system.

If the company shuts Google.cn, those investments are also likely to attract even tighter scrutiny from Chinese regulators, even if Google wants to stay in the country.

(Editing by Paul Tait)

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