Shares of Chinese tech giant Baidu plunged over 12% on Monday, January 15th, 2024, following media reports that the company’s AI chatbot ERNIE is being used by the Chinese military. The reports have raised concerns among investors over potential repercussions for Baidu from the US government.
Background on Baidu and ERNIE
Baidu is China’s dominant online search engine and one of the country’s leading artificial intelligence companies. In 2019, Baidu open-sourced ERNIE (Enhanced Representation through Knowledge Integration), an AI model designed to understand human language.
ERNIE is similar to chatbots like ChatGPT developed by US-based OpenAI. It can engage in conversational exchanges, summarize documents, answer questions, and generate essays, poems and news articles based on prompts from users.
Over the past year, Baidu has been integrating ERNIE capabilities into more products to drive growth as its core online marketing business slows. The technology helps attract users to its mobile apps and bolster its cloud services.
Reports of Links to Chinese Military Cause Stock Selloff
On January 15th, reports emerged that China’s National University of Defense Technology (NUDT) has been using ERNIE and other Baidu AI capabilities to further military applications like simulating battlefield scenarios and predicting human behavior.
Sources claimed NUDT is the first known connection between China’s AI weapons research and major commercial Chinese AI providers like Baidu.
The reports immediately sparked a stock selloff, with Baidu’s US-listed shares plunging over 12% in early trading – the biggest intraday drop since July 2022. At one point, losses exceeded $9 billion in market value.
Baidu later issued statements denying direct links with the Chinese military and reaffirming that its technologies are for “civilian and commercial uses.” But investors remained rattled over the possibility of Baidu getting added to US blacklists over AI weaponization concerns.
Expert Analysis on Implications for Baidu
Technology analysts say the latest developments could seriously hurt Baidu’s business interests and partnerships:
“This clearly jeopardizes Baidu’s collaborations in other countries if their technologies are aiding Chinese military applications,” said Dr. Lee Jones, AI ethics professor at Stanford University. “We could see allies like Europe and Japan hesitant to work with Baidu going forward.”
“There is historical precedent of the US sanctioning Chinese tech firms over military links – just look at Huawei. Baidu risks incurring the same backlash which could cripple overseas expansion,” added Michael Norris, research analyst at Shanghai-based consultancy AgencyChina.
In a statement to investors, Baidu CEO Robin Li said the company “will not waver in our foundational mission to use AI for social good” and that internal policies prohibit offensive weapon uses.
But Dr. Jones counters: “The connection between commercial and military systems is often blurry. Once capabilities like natural language processing are furnished, preventing misuse is virtually impossible.”
What Next for Baidu?
While Baidu downplays its exposure to fallout from the reports, experts believe some damage is inevitable considering ongoing US-China tensions over AI and defense:
“Recent rhetoric about restricting AI exports shows the US will likely increase scrutiny over Chinese firms and partnerships. Baidu can expect to be a main target of investigations,” said Norris.
Jefferies analyst Gary Yu also warned of further stock declines if more evidence surfaces: “This negative revelation came as a surprise. If additional details emerge on this issue, we see downside risk for Baidu’s share price.”
Much now depends on whether the US Trade Representative brands Baidu as a national security threat. But analysts already expect American cloud players and researchers to distance themselves from collaborations. Partners like Microsoft, Amazon and MIT have contributed tools and datasets that aided development of ERNIE over the years.
Baidu also runs the risk of copycats leveraging its open-sourced ERNIE for unintended purposes before fixes get deployed. Just last week, a fake chatbot named “ERNIE-UNDEAD” circulated online providing unethical advice before Baidu intervened.
For now, Baidu has strongly denied assisting Chinese military applications. But the court of public opinion may be unforgiving if further revelations come to light. This latest controversy serves as an inflection point in the age-old tussle between US and Chinese tech supremacy.
Table 1: Baidu Stock Movements on January 15th After Reports Surface
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