Baidu shares sink most since 2022 despite denying links to China military AI

HONG KONG – Baidu shares plunged their most in over a year after a news report linked its Ernie artificial intelligence (AI) platform to key Chinese military research into AI, spurring concerns about retaliation from Washington.

The search engine firm, generally considered one of China’s leaders in AI development, fell more than 10 per cent in Hong Kong on Jan 15, deepening losses from US trading on Jan 12. Baidu shares closed 11.5 per cent lower at HK$100.50 on Jan 15.

Traders in Hong Kong cited a South China Morning Post report about how a university affiliated with the People’s Liberation Army’s (PLA) Strategic Support Force – which oversees cyber warfare – had tested its AI system on Baidu’s ChatGPT-like Ernie.

Baidu on Jan 15 denied any affiliation or partnership with the institute. But the report about the hook-up with the PLA raised concerns that the United States may consider imposing sanctions on Chinese firms to curtail such collaboration, as part of efforts to contain its geopolitical rival.

Searches on Jan 15 found that the research paper cited by the South China Morning Post had been taken offline. The newspaper itself updated its article to remove a reference to a “physical link” between Ernie and the AI institute, without explanation.

“Baidu has no affiliation or other partnership with the academic institution in question,” a company spokesperson said in a statement.

“We have no knowledge of the research project, and if our LLM (large language model) was used, it would have been the version publicly available online.”

Baidu in 2023 debuted Ernie – the country’s earliest answer to OpenAI’s ChatGPT – jumping to the forefront of a nationwide development frenzy that has seen dozens of start-ups and most technology leaders, including Tencent Holdings to Alibaba Group Holding, getting caught up in it.

Baidu’s Ernie Bot amassed 100 million users months after its public roll-out, and the company claims its self-developed model has matched GPT-4 in terms of general capabilities.

Beyond the report, investors are worried about Baidu’s prospects during a Chinese economic downturn – especially with Ernie still some way off from yielding enough revenue to offset a fundamental decline in online advertising.

“People are worried about sanctions on Baidu, obviously, after the news report about military ties. They fear that the US government may announce measures to target Baidu,” said Mr Steven Leung, executive director at UOB Kay Hian in Hong Kong.

“The overall sentiment over China is weak and the US-China relationship is still intense, so investors sell first no matter if the news is true or not.”

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