entity to a PRC entity or individual designated by us. We rely on Mr. Robin Yanhong Li, who is also a director of our company, to abide by the Cayman Islands law, which provides that
directors owe a fiduciary duty to the company, and those who are also directors or officers of our PRC subsidiaries to abide by PRC law, which provides that directors and officers owe a fiduciary duty to the company. Such fiduciary duty requires
directors and/or officers to act in good faith and in the best interests of the company and not to use their positions for personal gains. There are, however, no specific provisions under the Cayman Islands or PRC law on how to address potential
conflicts of interest. If we cannot resolve any conflict of interest or dispute between us and the individual nominee shareholders of our consolidated affiliated entities, we would have to rely on legal proceedings, which could disrupt our business,
distract management and subject us to substantial uncertainty as to the outcome of any such legal proceedings.
We may be unable to
collect long-term loans to the nominee shareholders of our consolidated affiliated entities in China.
As of the
date of this annual report, we have made long-term loans in an aggregate principal amount of RMB7.7 billion (US$1.1 billion) to the nominee shareholders of our consolidated affiliated entities. We extended these loans to enable the nominee
shareholders to fund the capitalization of these entities. Certain of our consolidated affiliated entities are currently going through governmental registrations and filings in connection with their recent increase of registered capital, which we
anticipate will be completed in the next few months, and the increased portion of the registered capital will be funded promptly afterwards. We may in the future provide additional loans to the nominee shareholders of our consolidated affiliated
entities in China in connection with any increase in their capitalization to the extent necessary and permissible under applicable law. Our ability to ultimately collect these loans will depend on the profitability of these consolidated affiliated
entities and their operational needs, which are uncertain.
We are in the process of registering the pledges of equity interests by
nominee shareholders of some of our consolidated affiliated entities, and we may not be able to enforce the equity pledges against any third parties who acquire the equity interests in good faith in the relevant consolidated affiliated entities
before the pledges are registered.
The nominee shareholders of each of our consolidated affiliated entities have
pledged all of their equity interests in the relevant consolidated affiliated entities to our subsidiaries pursuant to equity pledge agreements under the contractual arrangements. An equity pledge agreement becomes effective among the parties upon
execution. However, according to the PRC Property Rights Law, an equity pledge is not perfected as a security property right unless it is registered with the relevant local administration for industry and commerce. We are in the process of
registering the pledge relating to Baidu Netcom, as well as certain other consolidated affiliated entities, relating to recent increases of their registered capital and equity interest transfer, which we anticipate will be completed in the next few
months. Prior to the completion of the registration, we may not be able to successfully enforce the equity pledge against any third parties who have acquired property right interests in good faith in the equity interests in the relevant consolidated
Risks Related to Doing Business in China
Changes in Chinas economic, political or social conditions or government policies could have a material and adverse effect on our
business and operations.
Most of our business operations are conducted in China. Accordingly, our business,
results of operations, financial condition and prospects are affected by economic, political and social conditions in China generally and by continued economic growth in China as a whole.
Chinas economy differs from the economies of most developed countries in many respects, including the level of
government involvement, level of development, growth rate, control of foreign exchange and allocation