Trading on Baidu's Punishment Over Illegal Downloads (BIDU, GOOG, CHIB, CQQQ)

The Chinese Ministry of Culture announced on Monday that it would punish Baidu, Inc. BIDU and thirteen other websites for ignoring repeated warnings to cut down on the illegal downloading of copyrighted music, according to the Xinhua News Agency. Exactly what sort of punishment Baidu, Inc will face is not yet clear but this news could have a significant impact on the company's stock price. Baidu has long been criticized for facilitating the illegal downloading of copyrighted material by its users. While much of the criticism directed at Baidu over the downloading of copyrighted content has come from outside China, the company has seen increasing criticism over its business practices coming from the Chinese owners of intellectual property as well. The company has faced pressure over its Baidu Library service from a group of Chinese authors who say that the service is violating their intellectual property rights. If Baidu is finally forced to make a concerted effort to cut down on illegal downloads and to protect intellectual property owners from the theft of their works, the company could also lose a competitive advantage that it has held over arch-rival Google Inc. GOOG. Google has had a rough time in China over the past year, as the company has been involved in a number of disputes with the Chinese government. The Chinese government reacted angrily to Google's decision not to censor China-based search results and the company has lost market share ever since. The news that the Chinese government is going after Baidu and other Chinese sites will be good news for Google if it looks as though the Chinese government is no longer focusing its attention solely on the American-based company but also penalizing its Chinese competitors for their business practices. Chinese tech companies may also benefit if intellectual property rights become more important in China and the government does more to enforce copyright and patent protections. If this is the case, than the Global X China Technology ETF CHIB and the Guggenheim China Technology ETF CQQQ could both see their share prices rise due to the Chinese government's attention to this issue.