By Don Gasper

Baidu.com Inc., China’s leading Internet search engine, has acted to tackle a scandal concerning its paid-links business.

The company was the subject of to two critical reports by state-controlled China Central Television this month which suggested that advertisers influenced the company’s search results. They alleged that Baidu had accepted payments from illegal medical companies to carry their ads. The reports caused Baidu’s shares to plummet and some analysts have revised downwards their price forecasts.

Last week, in a conference call with analysts, the company sought to take remedial action: It unveiled a new system that more clearly distinguishes its paid links from ordinary search results.

“We are doing this because we care,” said Baidu chief executive Robin Li. “It is important to us. We want to be a responsible corporate citizen.”

Company executives reiterated that its search engine did not exclude links from search results because the associated companies had not paid for them. But they also said they were speeding up development of a new system, called Phoenix Nest, in part to dispel confusion. Under this system, paid ads would appear in a clearly marked section on the right-hand side of the search results page.

Baidu has long argued that its paid links are marked, but last week Li admitted that some of the site’s users might be confused by paid and non-paid content.

His colleague Ye Peng, the company’s chief operating officer, also confirmed that the two Baidu salespersons interviewed in the CCTV program had been dismissed. “One failed to explain our product properly and accurately and the other forged business licenses for non-qualified clients.”

The business licenses concerned unlicensed hospital and pharmaceutical companies. CCTV alleged in its report that by accepting their ads Baidu made them look legitimate. Baidu has taken all medical ads down pending verification of their licenses.

Li said Baidu’s traffic hadn’t changed since the CCTV reports, but that was “no guarantee” of the future.”We are working to improve our user experience, so the traffic will increase in the long term,” he said.

Paid ads alongside search results account, as before, for 60 percent of the company’s revenue.

Discussing CCTV’s decision to carry an exposé of Baidu, Steven Tang of Global Voices Online wonders whether it was not dictated by business rivalry. “Before Baidu grew into a search giant, traditional media like CCTV controlled a large share of the ad market,” he notes. Now, as the Internet thrives, shares had been reallocated. This begged the question whether CCTV was seeking to discredit its rival in order to recapture market share.

It was sometimes difficult to spot “illegal” companies due to their camouflage, Tang noted, saying this was a problem as much for CCTV as for Baidu.