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The conversation ranged from Google pulling out of China to leveraging the power of Facebook. Here’s an excerpt from the Q&A.

Battelle: Baidu is one of best performing stocks anywhere. Do you feel pressure to continue that rocket ship ride?

Li: When I founded this company about 10 yrs ago, I never knew search could be so profitable. Now I don’t need more money but I need to make my products better, so more people can use my products. That’s the driver in my daily work. I don’t need to manage the stock price.

 What matters to me is the number of users keeps growing. We still have a lot of room for growth. Now the [Internet] penetration rate is only 1/3.

 Battelle: How many people is that?

 Li: 420 million. Eventually all mobile phones will be internet enabled; 800 mil is not unreasonable.

 Battelle: Why did Google leave? General understanding was that Google couldn’t compete in a market in a way they considered to be fair. They had to censor search results and other products. And there were some hacking incidents. Perhaps they weren’t in a level playing field.

 Li: The reality is that there are more choices in China for search than in US.

 China is a large and growing market. Market conditions change every day. There’s a lot of VC money from Silicon Valley VCs. They poured money into the local market. Always a lot of competition in China’s search market. A lot of Chinese engineers are in the US and many go back to China to join a local company or start their own company. If you are not prepared to compete in this kind of market, you’re not going to be successful.

 For Baidu, we tried harder. In 2003 before web 2.0 was coined, we came out with a  host bar. A query based community. Ask questions, answer people’s questions.  We’ve added a lot of community and social flavor in our search. It’s hard for users to switch now.

 Battelle: Would it make sense for you to integrate Facebook Connect into Baidu?

 Li: We don’t have a full blown social graph yet. We want to make search easier. Any feature that can do we that, we’re interested

 Battelle: You’ve succeeded in both markets. What is it like to build a company with an entrepreneurial culture in China?

 Li: You need to be a little bit patient. Keep open minded and what you have control of. Censorship issue, slow Internet connection, low penetration rate – you don’t have control of.

 Battelle:  Mobile. How is that developing in China?

 Li: We see a ubiquitous box. Search is on instantly. Replaces the operating system. That’s our vision of the future.  We are developing technologies to support that. Need to truly understand users’ intentions.

 Battelle: There are a lot of entrepreneurs here. The moment they’re offered an ungodly amount of money and they say no. This happened to you a number of times–$1.5 bil offered to you by Google, Yahoo and Microsoft.

 Li: I knew Baidu had more potential than $1 or$ 2 billion.