Quote from redherring.com:
Search giant Google is storing the search records for its recently launched Chinese site Google.cn outside the country in an effort to keep the Chinese government from demanding the files.

Full story:
http://www.redherring.com/Article.aspx?a=15927&hed=Google+Keeps+Files+from+China

I hope it is okay to quote'n'paste parts to this forum.

more collateral here
http://techdirt.com/articles/20060301/1616242_F.shtml