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Baidu Sets Sights on Local Market

Chinese Internet search engine company Baidu.com Inc said it will continue to focus on its core competence and the rapidly growing Chinese market, after the firm made the best initial public offering (IPO) on the NASDAQ stock market in five years on August 5.

"The biggest threat to us is not from our competitors, but the maturity of the market," said Robin Li, chairman and chief executive officer of the top Chinese search engine company, in an interview last weekend in Beijing.

The company's American depository shares made a strong debut, rising more than 350 percent to US$122.54 on the first trading day, the best performance on the NASDAQ since 2000.

Li said he believed the huge popularity was mainly from the fast growth of the Chinese market and the search engine business.

Baidu saw its revenues increase 10 times more than in the past two years to US$13.40 million in 2004.

However, another reason for the rise was believed to be related to the market's speculation that Baidu in which Google has a stake of less than 3 percent might be acquired by the global search giant.

Li suggested that such speculation might not be a rational one, and Baidu's dual-class structure in its shares might make an uninvited acquisition very difficult.

"Short-term changes of stock prices may not reflect the real situation of Baidu," said Li.

"But with more and more Chinese starting to use search engines, if the penetration rate can reach 30 percent, I believe the value of Baidu as a company will be higher."

Li said his company will spend US$109 million in proceeds from the listing on research and development, setting up more servers and recruiting more hands.

Although Li shrugged off the worries about increasing competition, he believed the market is still in an early stage and more competition will only lead to the faster maturity of the search engine business.

Google hired Kai-fu Lee, a former Microsoft vice-president as head of its China operation in July, and will set up a development centre in the country later this year.

Last week, Yahoo also sold its Chinese operations and invested US$1 billion in the Chinese e-commerce firm Alibaba, which vows to combine search functions and e-commerce to beat Google and eBay.

Chinese search engine players Sina, Sohu and Zhongsou are all trying to catch up to the competition.

According to the Chinese branch of UK-Based Evolution Securities, Baidu has one-third of the Internet search traffic and Google has 22 percent, but Baidu took 28 percent of revenues of the market and Google only has about 5 percent.

(China Daily August 16, 2005)

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