Google (NSDQ: GOOG) is treading where others fear to tread: the Chinese digital music market, where search leader Baidu (NSDQ: BIDU) leads the pack with borderline business of linking to “illegal” music download site and even won court ruling against labels on it (see related links below). Google is in the late planning stages of a JV with Chinese online music company Top100.cn, a Beijing-based site that currently sells licensed music downloads. The new service would permit Google’s search engine in China to provide free and licensed music downloads, reports WSJ, citing sources. The service will have three of the four majors (Universal is on board, and talks are on with EMI and Sony (NYSE: SNE) BMG), and dozens of smaller players, the story says.

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The service would offer high-quality music files embedded with a watermark to track these songs and their downloads. It would be a free MP3 downloads service with revenues through value added services like ringtones and special concert listings. Not clear yet: if the songs will be the local catalog or international ones too.

This news comes as the music industry is turning up the legal heat on Chinese websites it reckons are flouting its IP, as we reported this morning.After the labels lost to Baidu in a courts appeal last month, IFPI is now helping have another go at Baidu, under another new law.