Baidu in spotlight in medical listings scandal

One of the largest sources of internet giant Baidu Inc's revenue has come under threat as the government investigates its search business after the death of a cancer-stricken college student.

The Cyberspace Administration of China, the National Health and Family Planning Commission and the State Administration for Industry and Commerce - the regulator of online advertising - launched a joint probe on May 2.

It comes after 21-year-old Wei Zexi died after seeking out a controversial treatment advertised among Baidu's search results.

Before his death last month, Wei had called the treatment useless and criticized Baidu's paid listing practice in online posts.

His experience triggered an outcry in China, where there have been numerous scandals related to medical advertisements on Baidu since 2008, when state broadcaster China Central Television found the search giant promoted unqualified drug producers.

The share price of the Nasdaq-listed Baidu fell by 7.92 percent, the most in nine months, after the government investigation was announced.

Tian Hou, an analyst at TH Capital in Beijing, says the probe will certainly slow down Baidu's business in the short term, as medical-related advertisements account for about 30 percent of its revenue.

"An investigation can last for months, during which Baidu is expected to be very cautious about doing business with advertisers," she says.

Despite the public criticism of the business model of paid listings, Hou says it is the advertiser that causes the problems rather than the model itself.

"The business models of Baidu and Google Inc are essentially the same. It's a sound model. The problem is how to prevent unqualified medical institutions from advertising online," she explains.

Bloomberg contributed to this story.

mengjing@chinadaily.com.cn