David Drummend, Google’s General Council, announced yesterday that Google was making changes in its policy in China. Google was told that it would no longer be able to automatically redirect traffic to its Hong Kong subsidiary. Their license to run a website and effectively do business in China is up for renewal today.

Google’s (GOOG) reaction was to make the Hong Kong redirect a manual one on their Google.cn site.  But interestingly, they lead users somewhat cryptically to click through to the Chinese site.

See for yourself.  Go to Google.cn and click in the search bar.  You can’t. The whole page is just a link to Google.com.hk.  The text reads “We have moved to www.google.hk. Please bookmark our new address.”

It doesn’t appear that the Chinese government was amused.

Today Google searches are being partially blocked, according to Google’s own People’s Republic of China dashboard.

“It appears that search queries produced by Google Suggest are being blocked for mainland users in China. Normal searches that do not use query suggestions are unaffected,” Google said in a statement.

Some of  Google’s other services like Gmail, Google Images, Google News and Adsense remain active.

Colin Gillis, an analyst at BCG Partners said that China is proving to be a significant distraction for Google, noting that,

The turmoil of China is a drag on management’s time, and we do not expect the issue is resolved soon. Google should have considered keeping its stance- pushing China to decide whether to expire the Internet ContentProvider (ICP) license at the cost of the productivity gains offered by Google search and applications.

As Google’s license to be online in China is up tomorrow, events are being watched very closely and there is every possibility that Google.cn will go dark in the next few hours.