Recruiting in China

May drive small players out but help sector's development: experts

Search engine giant Baidu Inc is altering its pay-for-performance service for crowdfunding platforms to favor larger, better-financed participants with significant shareholders, a move that experts said Tuesday will benefit the industry in the long term.

"We've gotten a notice from Baidu that the company won't open new accounts for crowdfunding platforms that offer pay-for-performance services," an employee of Shanghai-based crowdfunding platform zhongchoujia.com, who preferred to be anonymous , confirmed to the Global Times on Tuesday.

Pay-for-performance services allow companies to be featured more prominently in Baidu's search results.

The notice said that crowdfunding platforms will only be eligible to use pay-for-performance services in Baidu if they meet at least one of five criteria, which include membership of the Payment & Clearing Association of China, having shareholders from banks or having the support of State-owned enterprises, according to the employee.

Platforms that don't qualify were supposed to be dropped from pay-for-performance services as of Tuesday, the employee said, although the account of zhongchoujia.com was still active because Baidu probably still needs time to deal with the issue.

Baidu didn't respond to the Global Times' request for comment as of press time.

The five conditions are basic requirements, and further metrics will be used to evaluate each platform's financial condition, a person close to the matter told the Global Times on Tuesday, speaking on condition of anonymity.

Baidu's requirements are unfair to small crowdfunding firms that are heavily dependent on the Internet, said the zhongchoujia.com employee.

Crowdfunding is the practice in which new companies or project managers privately raise funds from a large number of investors. In many cases, using the Internet is the best or only way of doing so.

"There's some background to Baidu's action. For instance, government authorities have been calling for controlling financial risks since 2015," Chang Zongfeng, co-founder of baichouhui.com, a Shanghai-based crowdfunding platform, told the Global Times on Tuesday. "Also, Baidu needs to improve its public image by reducing risks."

Baidu announced in May it would set aside 1 billion yuan to compensate users who were harmed by fraudulent marketing information on its website.

The government authorities requested Baidu to take several remedial measures in May after the death of a 21-year-old student Wei Zexi who used Baidu to search for the hospital to treat his cancer.

"During the short term, some crowdfunding firms that depend on the search engine to raise user flow will be affected a lot," said Chang, noting that some other search engines may follow Baidu's moves.

However, there are risks in the crowdfunding industry caused by "irregular practices," noted Chang.

For example, some firms lower the requirements for investors and some dubious products are offered on some platforms looking for investors, said Chang.

As of the end of the first quarter this year, there were at least 399 online crowdfunding firms in China, with 132 firms having been closed or transiting to other businesses, according to a report by Beijing-based financial information provider -01caijing.com in May .

In the first quarter, online crowdfunding firms raised about 3 billion yuan in total.

"It's good for Baidu to strengthen the regulations, which will benefit the industry in the long term," noted Chang. "In particular, equity crowdfunding should have more stringent requirements for investors as it's riskier than crowdfunding ordinary projects of lower value."

Yu Wenhui, founder of vchello.com, an equity crowdfunding platform based in South China's Guangdong Province, agreed with Chang.

"Strict regulation is good for the sound development of the industry," Yu told the Global Times on Tuesday.

Baidu could work with government authorities to evaluate platforms' qualifications, said Yu.