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Google Acquires Sizeable Stake in Baidu

Chinese Internet search engine company Baidu.com has received an unspecified amount of investment from its US counterpart Google, as the latter looks for opportunities in China.

Baidu said Tuesday that it had won investment from eight US investors led by the venture capital firm Draper Fisher Jurvetson and Google, but it did not disclose the exact amount of the capital and the stakes the investors got.

The company said the capital will be used to upgrade technologies and build brand profiles.

According to US reports, Google spent US$10 million on the deal.

Baidu President Robin Li said in an interview yesterday he and his partner Eric Xu remain the biggest shareholders in Baidu.

The biggest benefit for Baidu from the investment from Google will be a boost to its initial public offering (IPO) on the NASDAQ stock market, where Google is expected to launch its own keenly anticipated IPO this year.

He said the Google investment and its IPO would not have much impact on Baidu's public offering.

"Google is a leader in the global Internet industry and its investment will help investors appreciate the value of a search engine provider like Baidu," said Li.

From this year, almost all Chinese Internet stocks on the NASDAQ suffered a drop in their stock prices due to US investors' worries about an overheating Chinese economy and the financial performance of major Chinese Internet companies such as Sohu.com Inc and Netease.com Inc, especially their wireless value-added services.

Lu Sun, an analyst with Lehman Brothers in Hong Kong, agreed the investment from Google would help Baidu elevate its profile among global investors.

Li said Baidu would increase business cooperation with Google in the future, but he declined to comment on the possibility of selling his company to Google.

He added because of the partnership with Google, Baidu would virtually build an entry barrier for any other search engine provider to overcome in the Chinese market.

For Google, which previously faced a great challenge from Baidu in China, the deal will help it ease competition and get to better know the market.

"This is perhaps a preliminary equity alliance that may signal further cooperation in the future," said Sun of Lehman Brothers.

Henry Yang, president of Shanghai iResearch Co Ltd, a professional Internet market research house, agreed that the Google investment would help the US giant test the waters in the Chinese market.

"This will give a chance for Google to see the operations of Baidu and then decide if it is better to acquire Baidu or develop the market by itself," said Yang.

Another US Internet giant Yahoo! acquired Hong Kong-based 3721 Network Software Co Ltd, which controls another major Chinese search engine provider Beijing 3721, in November for US$120 million.

According to iResearch, the search engine market in China will grow from last year's 500 million yuan (US$60 million) to 840 million yuan (US$101 million)this year.

(China Daily June 16, 2004)

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