Baidu Execs Play a Bad Card, Arrests Ensue

As China combats gambling, arrests at Baidu weigh on shares of the tech giant.
Anna VodSep 29,2020,19:26

It’s a bad time for bad publicity for Baidu.

The company is growing fast on several fronts, including autonomous robotaxis and biotechnology. At the same time, the Chinese tech giant has been dealing with intensifying competition, iQiyi’s SEC probe, and now – a slew of arrests.

Shares in Baidu Inc. (Nasdaq: BIDU) were trading down 2% by midday Tuesday, at $123.40 per American depositary share.

This was after various media reported that Youcai Shi, who headed Baidu’s Mobile Ecology Group, was detained on the suspected promotion of gambling platforms. So was Zhongjun Li, a top sales executive at Baidu, as well as a number of agents and clients allegedly involved.

Gambling has been forbidden in China for 71 years – as long as the Communist Party has held power. Even the lottery market is heavily regulated and dominated by two state entities: The China Sports Lottery and the Welfare Lottery.

And China continues to combat the wicked pastime. A month ago, Beijing announced it will blacklist certain foreign casinos that target Chinese gamblers and forbid travel to those destinations, as reported by Casino.org. More recently, the International Cooperation Department at China’s Ministry of Public Security revealed a startling size of capital outflow. The department’s Jinrong Liao said that more than 1 trillion yuan ($146.5 billion) left the country through gambling networks in 2019.

Baidu’s Shi allegedly used the company’s gaming platform to promote gambling with the help of agents in on the action.

Baidu has yet to issue an official response to the incident but said it has zero tolerance for any violation of laws, as cited by Yicai Global. In 2019, Baidu reportedly worked with the police to clean up its search engine of hidden gambling ads from Cambodia.

Separately, Baidu’s main business is seeing a new risk on the horizon: Its dominance as China’s No. 1 search engine may be shaken.

Tencent Holdings (HKEX: 0700) has just struck a deal to acquire Sogou Inc. (NYSE: SOGO).

According to StatCounter, Sogou held about 17% of the online search market in the country, second after Baidu’s 71%, as of August 2020. This means a winning hand for Tencent at Baidu's expense.

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