China's new rules on search advertising are likely to impact on the income of internet giants like Baidu and Alibaba, experts said.
The new rule by the State Administration for Industry and Commerce broadened the definition of internet advertising, now including paid search results in the definition, the China Daily reported. Search engine companies are also required to provide a clear distinction between advertisements and legitimate search results by labeling the former as "ads".
Analysts said that the new regulations are intended to help the government to oversee China's $23.2 billion internet marketing industry.
However, experts have also said that the rules could have a significant impact on the earnings of major search engine company Baidu. According to Hong Kong-based analyst John Choi of Daiwa Capital Markets HK Ltd., the additional 3 percent culture cultivation tax that will likely be levied due to the new classification could cut Baidu's net income for the 2017 fiscal year to just 16.3 billion yuan ($2.4 billion).
On the other hand, Choi said that around 50 percent of Alibaba's first-quarter revenue for next year would also likely be affected. This could lead to a 2.4 percent drop in earnings for the online retail giant.
However, the two companies said that they will implement the new regulations. In a statement released by Alibaba, it said that the impact of the new tax on their profit margin will be only in the "low single-digit" range, as it already has a diversified source of revenues and is not solely relying on internet advertising, Bloomberg reported.
The new rule, set to take effect in September, is said to have been brought about by the outcry following the death of college student Wei Zexi, who was reportedly misled by Baidu search results into getting the wrong products when looking for treatment for cancer.