A man walks past an advertisement for Baidu.com in Shanghai in this picture taken on August 4, 2005.CHINA NEWSPHOTO
China's main state-run television station accused the country's top Internet search engine Baidu Inc of directing users to websites that sell counterfeit drugs, the People's Daily reported on Monday.
CCTV reported on Sunday that Baidu and other search engines had profited from promoting three websites offering counterfeit drugs that duped more than 3,000 people in China, said the newspaper, the mouthpiece of the ruling Communist Party.
Baidu declined comment on the accusation. Its shares trading in the U.S. slipped about 4 per cent to $70.50 in early Nasdaq trading.
The report comes two days before Baidu is expected to issue its quarterly results as it capitalizes on its new advertising system and gains from Google Inc's spat with China. In the second quarter, Baidu had a 70.8 per cent share of China's search market, according to iResearch data.
Baidu's shares have jumped more than 75 per cent this year.
A source familiar with the situation told Reuters on Monday the sites exploited a loophole in the system, piggybacking on legitimate websites to gain access to buy keywords. The source could not be identified due to the sensitivity of the matter.
In 2008, CCTV aired a similar expose on Baidu selling links to unlicensed medical sites with unproven claims for their products. The company's Nasdaq-listed shares subsequently fell more than 20 per cent and its fourth-quarter earnings were hit, prompting Baidu Chief Executive Robin Li to publicly apologize.
As a result of the scandal, Baidu had overhauled its operations and sacked staff involved.
In the last few years, China has been beset by a series of product safety scandals ranging from tainted milk to fake pharmaceuticals.
The government has announced several crackdowns but the problems persist, aided by a lack of surveillance, generally poor quality standards and corruption.