Google (Nasdaq: GOOG) may have scored a bucketful of karma points with activists when it threatened to bow out of China, but all it did was hand over gobs of market share to larger rival Baidu (Nasdaq: BIDU) on the way out.

Web traffic-watcher Analysys International shows that Google's share of the Chinese search market fell from 35.6% during last year's final quarter to 30.9% during the first three months of this year. Baidu gobbled it all up -- and then some. It went from a 58.4% chunk of the market to a heartier 64% slice in that time.

The stats are surprising. I figured Baidu would cash in on Google's retreat, but I felt this would have been a bigger opportunity for the smaller homegrown engines such's (Nasdaq: SOHU) Sogou and Tencent's Soso. I also figured that Microsoft's (Nasdaq: MSFT) Bing would emerge as the biggest winner in this shift, assuming that Google's void would create an appetite for a strong Western world replacement.

Nope. Google and Baidu combined for 94% of the search market at the end of December. It's up to 94.9% at the end of last month. Everyone else is just shrinking away in the rearview mirror.

Search Engine

Q1 2010

Q4 2009
















Source: Analysys International.

We will have a little more color here after Baidu reports its quarterly results today. In a spunky move, Credit Suisse has downgraded shares of China's market leader. The analyst is concerned that Baidu may be extending itself by ramping up its direct sales force and raising prices in Google's absence.

I don't know about that. Baidu's valuation is certainly lofty, but Baidu is emerging as the only game in town when it comes to paid search in China. Even if some marketing budgets turn to the display advertising strongholds of SINA (Nasdaq: SINA), Focus Media's (Nasdaq: FMCN) Allyes, and, they can't turn their backs to a suddenly more relevant Baidu.

We'll see if Credit Suisse's Wallace Cheung emerges victorious or with egg on his face later this week.

And where are you, Microsoft? Opportunity is calling, and it doesn't like to be placed on hold.

Is Baidu overvalued? It is safe to buy into China these days? Share your thoughts in the comments box below.

Microsoft is a Motley Fool Inside Value selection. Baidu, Google, and are Motley Fool Rule Breakers picks. SINA is a Motley Fool Stock Advisor recommendation. Motley Fool Options has recommended a diagonal call position on Microsoft. Try any of our Foolish newsletters today, free for 30 days.

Longtime Fool contributor Rick Munarriz has only been to China once, but he relishes admiring its dot-com revolution from afar. He does not own shares in any of the stocks in this article. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.