Baidu Shares Rise On Reports China Near Closing China Site

NEW YORK (Dow Jones)--American depositary shares of Chinese Internet company Baidu Inc. (BIDU) jumped Monday as it appeared increasingly likely that Google Inc. (GOOG) will shutter its Chinese-language search engine.

Baidu, which has a commanding share of the Internet-search market in China, has grown by leaps and bounds in the last few years but Google and other search engines are starting to make inroads. Baidu has about 58% of China's search revenue, according to Analysys International, a Beijing-based research firm, compared to 36% for Google.

But if Google soon exits the market, as reported by The Wall Street Journal, Baidu could stand to become a monopoly, RBC Capital Markets Stephen Ju said.

"It stands to reason that Baidu will probably capture most of the advertiser budgets committed to Google right now," Ju said, adding most analysts covering Baidu have been expecting Google to exit China.

A representative from Baidu wasn't immediately available to comment.

In recent trading, Baidu climbed 3.2% to $567.55, more than tripling over the past 12 months.

Google, meanwhile, slid 2.1% to $567.44. Its shares have climbed 75% over the past 12 months, but are down 4% over the past three.

A person familiar with situation told The Wall Street Journal on Saturday that Google is likely to take action within weeks, removing one of the last major foreign players from the world's most populous and fastest-growing Internet market.

Separately, Chinese authorities on Friday told local news Web sites that Google's Chinese site is likely to close and that, if it does, the news sites will be required to use only official accounts of the situation, rather than publish their own stories, according to a person familiar with the order.

A combination of strict government regulation, intense competition from Chinese companies and strategic mistakes on the part of the foreign companies themselves has meant that foreign Internet companies have either struggled to make inroads in China or never entered the market.

Google launched its Chinese-language search engine Google.cn in 2006, agreeing to censor some of its results.

In January, the company said it was "reviewing the feasibility of our business operations in China" and said it might back out of China entirely, as it disclosed it had been hit with major cyberattacks it believes to have originated from the country.

Meanwhile, Baidu has been aggressive in rolling out a new advertising system dubbed Phoenix Nest, but many have wondered if the company has pushed too hard with the advertising system, particularly after the recent departures of two top executives. Recent hacker attacks have added to Baidu's headaches.

But last month, Baidu reported its fourth-quarter earnings rose 48% to top Wall Street expectations, and it provided an upbeat outlook.

In its conference call with analysts, Baidu senior vice president Haoyu Shen said the company hasn't yet seen positive revenue impact to its fourth quarter or first quarter figures from the possible exit of its main rival Google from China.

But Baidu executives hinted that they do see longer term benefits from Google's conflict with Beijing, and its threat to pull out of the China market.

-By Shara Tibken, Dow Jones Newswires; 212-416-2189; shara.tibken@dowjones.com

(Loretta Chao and Ben Worthen contributed to this report.)