Baidu shares have slipped by nearly one-tenth in the two days since the report

After Google exited China's search market last year due to censorship and hacking, Chinese search engine Baidu Inc. stepped in and claimed the dominant position in the country's successful Internet market. According to Analysys International, a Beijing-based technology firm, Baidu snagged 76 percent of the search market in the second quarter.

Despite Baidu's success, it is developing a poor reputation due to fraud. A recent investigative report by China Central Television (CCTV) showed how simple it is to register and promote a fake website on the search engine, which has prompted state media and analysts to push for stricter rules regarding fraud on the company's site.

"As suggested by some experts, if Baidu cannot discipline itself, authorities should consider stepping in," said an article published on the People's Daily website. "Just as we do not live for food, Baidu should not just exist for money."

Since the half-hour CCTV investigative report, which ran two days ago and showed an undercover reporter receiving advice from a Baidu employee on how to get around pharmaceutical advertising regulations, shares of Baidu have slipped by nearly one-tenth. This equates to over $5 billion in market value off the company.

Despite this loss, Baidu shares are up almost 50 percent so far this year with a market value of $50 billion. Analysts believe the fall in share price will be "short-term."

"I have not changed my opinion about the company," said Paul Wuh, an analyst at Samsung Securities in Hong Kong. "The company suggested that it has thousands of sales personnel and some bad behavior is not caught all the time."

But CCTV has ran negative reports on Baidu before, and hopes to use this information to prompt government investigations. For instance, CCTV ran a story last year that accused Baidu of promoting counterfeit drugs.

"As Baidu becomes an essential part of people's Internet life, we believe the news report could trigger potential government investigations on the paid search business model and prospective regulations to protect customer rights," said Wallace Cheung, analyst at Credit Suisse in Hong Kong.

"If they're going to pirate somebody, we want it to be us rather than somebody else." -- Microsoft Business Group President Jeff Raikes

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