Facts vs. Rumors: The Misinterpreted Military Connection of Baidu

Today, a market rumor on Baidu’s misinterpreted link with the a university lab affiliated with the Chinese military resulted in the market’s overreaction of Baidu stocks.

The downturn was initiated by a report from the South China Morning Post published on Jan. 12, which insinuated a connection between Baidu‘s chatbot and a university lab affiliated with the Chinese military, based on interpretations of an academic paper. The misleading publication caused a notable dip in the company’s market valuation, and causing Baidu, a leader in China’s AI industry and dominant search engine provider, experienced a 10% drop in its stock price on the HKSE.

“ERNIE Bot is available to and used by the general public. The academic paper, published by scholars at a Chinese university, described how the authors built prompts and received responses from LLMs, using the functions available to any user interacting with generative AI tools. Baidu has not engaged in any business collaboration or provided any tailored service to authors of the academic paper or any institutions with which they are affiliated. The South China Morning Post, the first media outlet that reported on this academic paper, has clarified and corrected their original media report,”according to Baidu’s statement on Monday.

A thorough review of the situation reveals that the market’s response may have been based on a misinterpretation of facts. The academic paper, authored by a professor from the Information Engineering University—a tertiary institution not widely recognized for its global ranking(it is ranked 1996 globally according to the U.S. News)—utilized the publicly available versions of Baidu‘s ERNIE Bot and iFlyTek’s SparkDesk for research into military tactics. As suggested in the academic paper’s image illustrations, the ERNIE chatbot in question, which was released to the public in August and has since accrued over 100 million users, was used in the same manner as any other user would—through standard internet access and without any specialized modification or military involvement.

Illustrations from the academic paper

Baidu has responded to the statements put forward by the South China Morning Post, stating that the company has no ties with military organizations and has not engaged in any form of collaboration with the individuals or entities involved in the academic study.

Subsequent to the initial report, the South China Morning Post has discreetly amended its article, eliminating the claim that the Chinese military had “forged a physical link between its AI system and Baidu’s ERNIE.” Nevertheless, the corrected article has not fully stemmed the spread of the misleading narrative.

It is also worth noting that the journal which published the controversial paper, “Command Control & Simulation,” carries an impact factor of merely 0.365, as recorded by justscience.cn. Questions have been raised concerning the research methodology described in the paper, with critics suggesting that the simple act of posing questions to chatbots hardly equates to the creation of “AI Agents.”

Investors are advised to consider that the volatility affecting Baidu‘s stock may not be a true reflection of the company’s intrinsic value. Baidu‘s fundamentals reportedly remain robust and are not directly impacted by the unsubstantiated claims. As a result, market observers speculate that the current dip in stock price could potentially offer a favorable buying opportunity for those looking at long-term investment prospects.

Zichen Wang, the founder of Pekingnology, a newsletter about the Chinese market, tweeted about the incident, “such a substandard paper, once reported by the South China Morning Post, could wipe out 20 billion in market value for Baidu,” adding that “the world is crazy.”

While Don Weinland, a journalist of The Economist and long-time China-watcher, commented in agreement, saying “pretty wild just how sensitive the market is right now.”