Google's China staff fear they may lose their jobs
China has said that foreign internet firms are welcome to do business there "according to the law".
The statement, from Foreign Ministry spokeswoman Jiang Yu, is Beijing's first response to Google's threat to stop filtering content in China.
Google said cyber-attacks originating in China aimed at rights activists, and increased web censorship, might force it to end its China operations.
Ms Jiang insisted the internet was "open" in China.
Google announced late on Tuesday that it was no longer willing to censor its Chinese search engine - google.cn.
The search engine said it would hold talks with the government in the coming weeks to look at operating an unfiltered search engine within the law in the country, though no changes to filtering have yet been made.
At a regular foreign ministry news briefing, Ms Jiang said: "China like other countries administers the internet according to law.
"China's internet is open, and the Chinese government encourages development of the internet."
She was responding to a reporter's question on Google and US concerns about the business environment in China in light of Google's reported cyber-attacks.
"Chinese law proscribes any form of hacking activity," she said.
Chris Hogg, BBC News Shanghai
The foreign ministry spokeswoman was asked seven times about Google at her regular briefing.
Her response was entirely predictable.
A more revealing answer came Thursday from Wang Chen, a minister at the State Council who insisted that "properly guiding internet opinion is a major measure for protecting internet information security".
He did not mention Google by name, but he did complain that online pornography, fraud and "rumours" were a menace.
As analysts here have noted, China has seen explosive internet growth in recent years, and China is making clear it does not intend to give up the control it exerts over cyberspace.
When Google launched google.cn in 2006, it agreed to censor some search results - such as the 1989 Tiananmen Square protests, Tibetan independence or Falun Gong - as required by the Chinese government.
The BBC's Chris Hogg in Shanghai says Ms Jiang's comments sound like a holding statement, until officials can have talks with Google.
Google currently holds about one-third of the Chinese search market, far behind Chinese rival Baidu, which has more than 60%.
China has more internet users - about 350 million - than any other country and provides a lucrative search engine market worth an estimated $1bn (£614m) last year.
It is difficult to see how the situation can be resolved, our correspondent says, with Google potentially losing its market share and the government reluctant to give up its right to control the internet.
'Don't be evil'
In a blog posted late on Tuesday, Google's chief legal officer David Drummond announced "A new approach to China".
He said the accounts of dozens of US, China and Europe-based users of its Gmail service who are advocates of human rights in China had been "routinely accessed by third parties".
At least 20 other large companies from a wide range of businesses were similarly targeted, it added.
HAVE YOUR SAY
Google's threat to withdraw from China is derisory and hypocritical
Paul Jordan, Liverpool
Google's decision to concede to China's demands on censorship in 2006 led to accusations it had betrayed its company motto - "don't be evil" - but Google argued it would be more damaging for civil liberties if it pulled out of China entirely.
Google's stance has drawn mixed reaction from China's internet community. Some have applauded what they see as a bold stand against the country's internet guardians while others expressed fears they would lose a valued source of news, despite it being censored.
Others saw the Google statement as a Chinese victory, saying that Google's withdrawal from the country would be no great loss, with Baidu providing almost all the same services as google.cn.
The state-run China Daily described Google's statement as designed to put pressure on the Chinese government.