China Issues New Rules on Paid Internet Search Results; Baidu to Cut Profit Forecast
Yicai Global
/SOURCE : Yicai
China Issues New Rules on Paid Internet Search Results; Baidu to Cut Profit Forecast

(Yicai Global) June 27 -- China's Internet regulator has issued new rules to tighten search engine regulation and require paid search results to be clearly identified. Baidu Inc. [NASDAQ:BIDU], operator of China's most-used Internet search engine, said it will cut its earnings forecast as a result.

Under the new rules, issued by the Cyberspace Administration of China's (CAC) on June 25, search engines such as Baidu that provide paid search services must check the advertisers' qualifications, indicate the quantity of paid search content on each webpage, and clearly label regular and paid search results to differentiate them.

The stricter regulations follow a government investigation launched about six weeks ago into Baidu's medical advertising practices after the death of a 22-year-old cancer patient. Mr. Wei Zexi. died after taking a treatment he found through an online ad placed on Baidu, prompting the public to question the pay-per-click ranking mechanism used by the tech company.

In April, Mr. Wei's death prompted government departments to conduct an on-site investigation at Baidu. It also led to a 17 percent plunge in Baidu's stock price to USD161.5 from USD194.3, shaving nearly USD10 billion from its market capitalization.

Baidu responded to the new rules by stating that it would tighten up in-house management and appealed to Internet users to monitor its actions and report any violations. Earlier this month, the Beijing-based company lowered its projected second-quarter operating income 10 percent to USD2.81 billion, citing a falloff in income from advertising by healthcare providers.

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