Baidu (Nasdaq: BIDU) may be China's darling when it comes to search, but now it's facing a challenger that is even more homegrown.

China's government news agency is teaming up with China Mobile (NYSE: CHL) to launch Panguso.com this week.

Now that China is the world's largest Internet market, it probably isn't a surprise to see the country's restrictive government staking its claim here. Just as Xinhua's news reports are heavily censored, Panguso is an actively vetted engine.

The Associated Press was quick to drum up the lapses after Tuesday's launch.

  • A search for the Dalai Lama simply turns up tourism information for Tibet.
  • Liu Xiaobo, the jailed activist and Nobel Peace laureate, doesn't turn up at all.
  • There are no results for the popular People's University in Beijing, even though it's not necessarily a controversial institution.

Baidu, Microsoft's (Nasdaq: MSFT) Bing, and Sohu.com's (Nasdaq: SOHU) Sogou play by China's restrictive content rules, but not to this extreme extent.

It's at this point where one could dismiss Panguso altogether. Baidu is the people's choice, commanding the lion's share of the search queries performed through computers and smartphones in China. Why would users switch to an incomplete engine with whitewashed results?

Well, what if the Chinese didn't have a choice?

After watching Middle Eastern countries clamp down on Internet usage to help nip protest organizations in the bud, who are we to put it past China to follow suit if civilian disruptions creep up?

Baidu has played by China's rules, but Baidu Talk and SINA's (Nasdaq: SINA) Weibo have grown in popularity as microblogging platforms. Under threatened conditions, why can't China shut down access to all the popular portals outside of its own Panguso mouthpiece?

This is unlikely to happen. China would lose global credibility. It didn't buckle when Google (Nasdaq: GOOG) threatened to leave last year, but the fact that Google stood largely alone in its defiance kept it from being an embarrassment to the government.

Baidu will continue to grow. The Internet migration and booming economy will continue to benefit Baidu's bottom line. However, Tuesday's debut of Panguso will get conspiracy theorists cranking out doomsday scenarios. It's a sliver of uncertainty that Baidu doesn't need after hitting a new all-time high last week.

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