> What leverage does Google have?

Consider that Google owns about 65% of the search market worldwide (http://www.businessinsider.com/bing-who-google-worldwide-sea...). In addition, they enjoy a tremendous amount of goodwill - they are really seen as the good guys by a lot of people.

If Google wants to play tough, they have a lot to work with. At the very least, the Chinese regime would be launching a PR nuke on itself.