BREAKINGVIEWS-Baidu smear campaign can't be brushed aside

Thu Aug 18, 2011 4:56am EDT

By John Foley

HONG KONG Aug 18 (Reuters Breakingviews) - Critical reports by Chinese state TV have knocked 9 percent off the dotcom giant’s shares. It may be professional envy rather than political conspiracy. Still, the Communist Party’s relationship with the web is fractious. And Baidu’s ownership structure may be an Achilles' heel.

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CONTEXT NEWS

-- China Central Television, the state broadcaster, has aired a series of reports criticising online search giant Baidu for its business practices, including allegations that it helped users to circumvent rules on online advertising of pharmaceutical products.

-- On Aug. 15, CCTV-2 suggested Baidu’s advertising practices were inappropriate, after a reporter disguised as a marketer for a weight-loss product managed to advertise on the site with help from staff at Baidu’s marketing centre.

-- Another report, aired on Aug. 16, featured a professor at Beijing’s Tsinghua University, Cai Jiming, who has sued Baidu for abuse posted on forums which the company hosts.

-- Baidu has built its market share considerably since Google stopped offering search directly in China, a move the U.S. group said was a response to China’s requirement that search operators censor the information they require. Its share of search is “over 70 percent”, according to state media agency Xinhua on Aug. 18.

-- Baidu’s shares are listed in the United States, and the company uses a vehicle known as a “variable interest entity”, which gives investors contractual rights rather than ownership of its core licences, to circumvent rules on foreign ownership of certain media businesses.

-- Baidu shares closed at $138 on Aug. 17, down 9 percent from the beginning of the week.

-- Reuters story: China's Baidu may face tougher rules after state media criticism [ID:nL3E7JG1ED]

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)

-- For previous columns by the author, Reuters customers can click on [FOLEY/]

(Editing by Peter Thal Larsen and Sarah Bailey)

((john.foley@thomsonreuters.com)) Keywords: BREAKINGVIEWS BAIDU/CCTV/

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