On Monday, Chinese authorities launched an investigation into Baidu’s unethical search ranking and advertising practices in response to public outrage over the death of Wei Zexi, a 21-year-old college student who died last month after undergoing a bogus cancer treatment program advertised prominently on the search engine. Analysts believe the probe will likely end in harsh penalties for Baidu and stricter regulation of online medical advertising. A
The analysts said on Tuesday that they expected Baidu, which has more than 70 per cent revenue share of China’s online search market, to receive more than a cash fine if found guilty of misconduct as a publisher of digital advertising or for violating certain regulations.
“Violations of China’s advertising laws and regulations are subject to penalties, and even the potential termination of advertising operations or removal of a business licence,” Morningstar senior equity analyst Marie Sun said in a report.
[…] Paul Haswell, a partner at international law firm Pinsent Masons, said “a ban on Baidu’s health-care-related advertising, or at least [enforcement of] tighter controls on such advertising” would serve “as a logical and relatively balanced” penalty.
“It is entirely possible that as a result of this case more stringent controls will be placed over internet-based advertising , requiring a licence or approval for each and every advertisement,” he said.
“China has the political climate and technological capabilities to make that happen.” [Source]
Baidu has disproportionally dominated the Chinese search engine market since Google’s exit in 2010, which took place following a censorship dispute with the Chinese government. Unlike its American counterpart, Baidu relies heavily on revenue generated from medical advertisements through the bid ranking of sponsored health-care providers in its search results. South China Morning Post’s Alice Woodhouse and Zen Soo report:
Medicine and health care were among the 10 major industries contributing to Baidu’s online marketing revenue in 2015, according to the company’s latest annual report.
By contrast, the medical industry does not even factor into Google’s top 10 industries in terms of advertising revenue, according to data by Shanghai-based digital marketing firm Sekkei Studio.
[…] Depending on the target country, Google’s advertising policy restricts promotion of health-care-related content including over-the-counter medication, medical services and procedures.
[…] An internal letter circulated in Baidu’s intranet obtained by The Beijing News said Baidu turned down 30 million yuan in promotional requests from illegal medical services and closed down 438,000 suspicious advertising accounts in 2015. [Source]
The department where Wei received his treatment at the Second Armed Police Hospital was allegedly run under contract by a medical company affiliated with the Putian Clan, a network of medical entrepreneurs from Fujian who are among China’s largest private healthcare providers frequently associated with misleading advertising and overpriced treatments. At Global Voices, Patrick Wong looks at the growth of Putian hospitals and their business connection with Baidu:
At the onset of the Reform and Opening in 1978, many hospitals did not have sufficient state subsidies to operate. As a result, these doctors in Putian seized the chance and filled the funding gap by offering investments, as well as additional doctors and medical devices, entering into profit-sharing arrangements with the hospitals. It was the dawn of a new era of medical marketization. In the 1990s, when China started allowing the private sector to invest in public hospitals, the country’s medical industry became massively profitable.
In 2000, the authorities prohibited private investment in public hospitals, but lifted the ban on establishing private hospitals.
Many hospitals in China have titles like “army,” “air force,” and “armed police,” and all of these military hospitals have been under the direct regulation by the People’s Liberation Army, unlike the public facilities supervised by the Health Department. These military hospitals have become strategic partners for the Putian faction.
[…] Putian-affiliated hospitals often claim that they have the world’s most advanced medical treatment and the country’s most experienced doctors and can cure any kind of disease.
According to Tencent news, Putian faction hospitals contributed 10 billion yuan (the equivalent of 1.6 billion US dollars) to Baidu’s advertising revenue in 2014. This January, Baidu came under fire for flooding online communities with false claims and advertisements for unlicensed hospitals. [Source]
The Second Armed Police Hospital announced on Wednesday that it will temporarily terminate admission of new patients as the medical center awaits investigation in connection to Wei’s case. At Reuters, Adam Jourdan reports:
The Second Hospital of Beijing Armed Police Corps has stopped new admissions, the state-run People’s Daily said in a post on its official microblog, a day after the health ministry launched an investigation into the hospital.
[…] China’s paramilitary police, which ran the hospital, said it would cooperate fully with the probe.
In a brief statement released on the Chinese military’s news website, the People’s Armed Police said it paid great attention to Wei’s case and had already sent its own team to the hospital.
“Problems that are discovered will be seriously investigated and handled in accordance with the law, and there will be no compromises,” it said, without elaborating. [Source]