BAIDU, INC.
Baidu Campus
No. 10 Shangdi 10th Street
Haidian District, Beijing 100085
People’s Republic of China
October 31, 2022
VIA EDGAR
Ms. Kathryn Jacobson
Mr. Robert Littlepage
Division of Corporation Finance
Office of Technology
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
| Re: | Baidu, Inc. (the “Company”) |
Form 20-F for the Fiscal Year Ended December 31, 2021
Filed on March 28, 2022 (File No. 001-51469)
Dear Ms. Jacobson and Mr. Littlepage,
This letter sets forth the Company’s responses to the comments contained in the letter dated September 26, 2022 from the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) regarding the Company’s annual report on Form 20-F for the fiscal year ended December 31, 2021 filed with the Commission on March 28, 2022 (the “2021 Form 20-F”) and the Company’s response to the Staff’s comments regarding the 2021 Form 20-F submitted on August 2, 2022. The Staff’s comments are repeated below in bold and are followed by the Company’s responses thereto. All capitalized terms used but not defined in this letter shall have the meaning ascribed to such terms in the 2021 Form 20-F.
Form 20-F for the Year Ended December 31, 2021
Item 3. Key Information
A. Selected Financial Data
Cash Flows through our Organization, page 7
| 1. | We note your response to prior comment 5. Please expand your disclosure of cash flows to and from the VIEs to segregate loan amounts to nominee shareholders to fund the capitalization of the VIEs for which the Company does not intend to seek repayment as of each period reported. As of the end of the most recent balance sheet date, disclose the amounts retained by the nominee shareholders and those with maturity dates during the next twelve months and beyond. |
Division of Corporation Finance
Office of Technology
Securities and Exchange Commission
October 31, 2022
Page 2
In response to the Staff’s comment, the Company undertakes to revise the disclosure as follows (page references are made to the 2021 Form 20-F to illustrate the approximate location of the disclosure) in its future Form 20-F filings (with deletions shown as strike-through and additions underlined):
Page 7
“Cash Flows through Our Organization
……
For the years ended December 31, 2019, 2020 and 2021,
For the years ended December 31, 2019, 2020 and 2021, our PRC consolidated
affiliated the variable interest entities received RMB11.7 billion, RMB5.0 billion and RMB6.9 billion (US$1.1 billion), respectively, as capital contributions or loans from the subsidiaries of Baidu, Inc. and the PRC
consolidated affiliated variable interest entities repaid principal amount of RMB9.1 billion, RMB1.1 billion and nil, respectively, to the subsidiaries.
……”
The Company
further undertakes to revise the selected financial information tables as follows in its future Form 20-F filings in response to the Staff’s comments #1, 2 and 3, with changed or added line items shaded in grey. Corresponding adjustments are
also made to certain amounts in the below tables in order to address the Staff’s comments.
Page 9:
“Selected Condensed
Consolidateding Statements of Comprehensive Income Information
| For the Year Ended December 31, 2021 | ||||||||||||||||||||||||
| Baidu, Inc. | Primary Beneficiaries of VIEs excluding Baidu, Inc. |
Other Subsidiaries |
VIEs and VIEs’ subsidiaries |
Eliminations | Consolidated Total |
|||||||||||||||||||
| RMB | ||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
| Revenue |
— | 4 | 83,424 | 61,380 | (20,315 | ) | 124,493 | |||||||||||||||||
| Share of (loss) income of the VIEs and VIEs’ subsidiaries |
(276 | ) | (2,067 | ) | — | — | 2,343 | — | ||||||||||||||||
| Net income (loss) |
10,226 | (6,248 | ) | 16,330 | (220 | ) | (12,497 | ) | 7,591 | |||||||||||||||
Division of Corporation Finance
Office of Technology
Securities and Exchange Commission
October 31, 2022
Page 3
| For the Year Ended December 31, 2020 | ||||||||||||||||||||||||
| Baidu, Inc. | Primary Beneficiaries of VIEs excluding Baidu, Inc. |
Other Subsidiaries |
VIEs and VIEs’ subsidiaries |
Eliminations | Consolidated Total |
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| RMB | ||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
| Revenue |
— | — | 69,425 | 52,666 | (15,017 | ) | 107,074 | |||||||||||||||||
| Share of income (loss) of the VIEs and VIEs’ subsidiaries |
2,483 | (1,045 | ) | — | — | (1,438 | ) | — | ||||||||||||||||
| Net income (loss) |
22,472 | (7,055 | ) | 26,137 | 2,091 | (24,619 | ) | 19,026 | ||||||||||||||||
| For the Year Ended December 31, 2019 | ||||||||||||||||||||||||
| Baidu, Inc. | Primary Beneficiaries of VIEs excluding Baidu, Inc. |
Other Subsidiaries |
VIEs and VIEs’ subsidiaries |
Eliminations | Consolidated Total |
|||||||||||||||||||
| RMB | ||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
| Revenue |
— | — | 72,172 | 51,988 | (16,747 | ) | 107,413 | |||||||||||||||||
| Share of (loss) income of the VIEs and VIEs’ subsidiaries |
(3,072 | ) | (3,392 | ) | — | — | 6,464 | — | ||||||||||||||||
| Net income (loss) |
2,057 | (10,322 | ) | 12,550 | (2,950 | ) | (3,623 | ) | (2,288 | ) | ||||||||||||||
Selected Condensed Consolidateding Balance Sheets Information
| As of December 31, 2021 | ||||||||||||||||||||||||
| Baidu, Inc. | Primary Beneficiaries of VIEs excluding Baidu, Inc. |
Other Subsidiaries |
VIEs and VIEs’ subsidiaries |
Eliminations | Consolidated Total |
|||||||||||||||||||
| RMB | ||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
| Assets |
||||||||||||||||||||||||
| Cash and cash equivalents |
11,448 | 1,673 | 20,850 | 2,879 | — | 36,850 | ||||||||||||||||||
| Short-term investments |
6,499 | 2 | 133,756 | 2,986 | — | 143,243 | ||||||||||||||||||
| Accounts receivable, net |
— | — | 2,491 | 7,490 | — | 9,981 | ||||||||||||||||||
| Others |
61 | 50 | 15,056 | 8,074 | — | 23,241 | ||||||||||||||||||
| Total current assets |
18,008 | 1,725 | 172,153 | 21,429 | — | 213,315 | ||||||||||||||||||
| Fixed assets, net |
199 | — | 13,923 | 8,905 | — | 23,027 | ||||||||||||||||||
| Intangible assets, net |
— | 1 | 74 | 1,614 | — | 1,689 | ||||||||||||||||||
| Licensed copyrights, net |
— | — | 4,969 | 2,289 | — | 7,258 | ||||||||||||||||||
| Produced content, net |
— | — | 525 | 10,426 | — | 10,951 | ||||||||||||||||||
| Long-term investments, net |
— | 374 | 43,960 | 22,998 | — | 67,332 | ||||||||||||||||||
| Investments in subsidiaries |
251,929 | — | — | 106 | (252,035 | ) | — | |||||||||||||||||
| Contractual interests in the VIEs and VIEs’ subsidiaries(1) |
2,117 | — | 24,095 | — | (26,212 | ) | — | |||||||||||||||||
| Operating lease right-of-use assets |
— | — | 4,989 | 7,076 | — | 12,065 | ||||||||||||||||||
Division of Corporation Finance
Office of Technology
Securities and Exchange Commission
October 31, 2022
Page 4
| As of December 31, 2021 | ||||||||||||||||||||||||
| Baidu, Inc. | Primary Beneficiaries of VIEs excluding Baidu, Inc. |
Other Subsidiaries |
VIEs and VIEs’ subsidiaries |
Eliminations | Consolidated Total |
|||||||||||||||||||
| RMB | ||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
| Others |
— | 152 | 33,548 | 10,697 | — | 44,397 | ||||||||||||||||||
| Total non-current assets |
254,245 | 527 | 126,083 | 64,111 | (278,247 | ) | 166,719 | |||||||||||||||||
| Amounts due from the entities within Baidu(2) |
6,116 | 18,751 | 3,269 | — | (28,136 | ) | — | |||||||||||||||||
| Total assets |
278,369 | 21,003 | 301,505 | 85,540 | (306,383 | ) | 380,034 | |||||||||||||||||
| Liabilities |
||||||||||||||||||||||||
| Accounts payable and accrued liabilities |
712 | 71 | 22,249 | 18,352 | — | 41,384 | ||||||||||||||||||
| Customers’ deposits and deferred revenue |
— | — | 7,656 | 6,050 | — | 13,706 | ||||||||||||||||||
| Operating lease liabilities |
— | — | 243 | 2,619 | — | 2,862 | ||||||||||||||||||
| Others |
10,450 | — | 2,515 | 3,571 | — | 16,536 | ||||||||||||||||||
| Total current liabilities |
11,162 | 71 | 32,663 | 30,592 | — | 74,488 | ||||||||||||||||||
| Operating lease liabilities |
— | — | 316 | 5,253 | — | 5,569 | ||||||||||||||||||
| Others |
55,748 | 12,655 | 6,589 | 1,033 | — | 76,025 | ||||||||||||||||||
| Total non-current liabilities |
55,748 | 12,655 | 6,905 | 6,286 | — | 81,594 | ||||||||||||||||||
| Amounts due to the entities within Baidu(2) |
— | — | — | 19,744 | (19,744 | ) | — | |||||||||||||||||
| Total liabilities |
66,910 | 12,726 | 39,568 | 56,622 | (19,744 | ) | 156,082 | |||||||||||||||||
| Redeemable noncontrolling interests |
— | 4,912 | 1,580 | 656 | — | 7,148 | ||||||||||||||||||
| Equity |
||||||||||||||||||||||||
| Total Baidu shareholders’ equity(3) |
211,459 | 850 | 259,577 | 26,212 | (286,639 | ) | 211,459 | |||||||||||||||||
| Noncontrolling interests |
— | 2,515 | 780 | 2,050 | — | 5,345 | ||||||||||||||||||
| Total equity |
211,459 | 3,365 | 260,357 | 28,262 | (286,639 | ) | 216,804 | |||||||||||||||||
| Total liabilities, redeemable noncontrolling interests, and equity |
278,369 | 21,003 | 301,505 | 85,540 | (306,383 | ) | 380,034 | |||||||||||||||||
| As of December 31, 2020 | ||||||||||||||||||||||||
| Baidu, Inc. | Primary Beneficiaries of VIEs excluding Baidu, Inc. |
Other Subsidiaries |
VIEs and VIEs’ subsidiaries |
Eliminations | Consolidated Total |
|||||||||||||||||||
| RMB | ||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
| Assets |
||||||||||||||||||||||||
| Cash and cash equivalents |
4,079 | 6,080 | 23,275 | 2,348 | — | 35,782 | ||||||||||||||||||
| Short-term investments |
— | 291 | 119,181 | 6,930 | — | 126,402 | ||||||||||||||||||
| Accounts receivable, net |
— | — | 2,517 | 6,151 | — | 8,668 | ||||||||||||||||||
| Others |
78 | 58 | 3,794 | 8,560 | — | 12,490 | ||||||||||||||||||
| Total current assets |
4,157 | 6,429 | 148,767 | 23,989 | — | 183,342 | ||||||||||||||||||
| Fixed assets, net |
192 | — | 12,338 | 4,978 | — | 17,508 | ||||||||||||||||||
| Intangible assets, net |
— | 2 | 521 | 1,499 | — | 2,022 | ||||||||||||||||||
Division of Corporation Finance
Office of Technology
Securities and Exchange Commission
October 31, 2022
Page 5
| Licensed copyrights, net |
— | — | 5,442 | 993 | — | 6,435 | ||||||||||||||||||
| Produced content, net |
— | — | 426 | 6,130 | — | 6,556 | ||||||||||||||||||
| Long-term investments, net |
— | 171 | 56,970 | 19,092 | — | 76,233 | ||||||||||||||||||
| Investments in subsidiaries |
232,396 | — | — | 1,615 | (234,011 | ) | — | |||||||||||||||||
| Contractual interests in the VIEs and VIEs’ subsidiaries(1) |
5,315 | — | 22,050 | — | (27,365 | ) | — | |||||||||||||||||
| Operating lease right-of-use assets |
— | — | 3,344 | 6,460 | — | 9,804 | ||||||||||||||||||
| Others |
— | 149 | 22,942 | 7,717 | — | 30,808 | ||||||||||||||||||
| Total non-current assets |
237,903 | 322 | 124,033 | 48,484 | (261,376 | ) | 149,366 | |||||||||||||||||
| Amounts due from the entities within Baidu(2) |
— | 20,090 | 3,067 | — | (23,157 | ) | — | |||||||||||||||||
| Total assets |
242,060 | 26,841 | 275,867 | 72,473 | (284,533 | ) | 332,708 | |||||||||||||||||
| Liabilities |
— | |||||||||||||||||||||||
| Accounts payable and accrued liabilities |
649 | 92 | 21,612 | 14,363 | — | 36,716 | ||||||||||||||||||
| Customers’ deposits and deferred revenue |
— | — | 6,635 | 5,991 | — | 12,626 | ||||||||||||||||||
| Operating lease liabilities |
— | — | 298 | 2,068 | — | 2,366 | ||||||||||||||||||
| Others |
6,453 | 4,752 | 2,843 | 2,629 | — | 16,677 | ||||||||||||||||||
| Total current liabilities |
7,102 | 4,844 | 31,388 | 25,051 | — | 68,385 | ||||||||||||||||||
| Operating lease liabilities |
— | — | 317 | 4,376 | — | 4,693 | ||||||||||||||||||
| Others |
48,408 | 11,942 | 6,294 | 1,143 | — | 67,787 | ||||||||||||||||||
| Total non-current liabilities |
48,408 | 11,942 | 6,611 | 5,519 | — | 72,480 | ||||||||||||||||||
| Amounts due to the entities within Baidu(2) |
3,854 | — | — | 12,204 | (16,058 | ) | — | |||||||||||||||||
| Total liabilities |
59,364 | 16,786 | 37,999 | 42,774 | (16,058 | ) | 140,865 | |||||||||||||||||
| Redeemable noncontrolling interests |
— | 1,828 | — | 1,274 | — | 3,102 | ||||||||||||||||||
| Equity |
||||||||||||||||||||||||
| Total Baidu shareholders’ equity(3) |
182,696 | 3,836 | 237,274 | 27,365 | (268,475 | ) | 182,696 | |||||||||||||||||
| Noncontrolling interests |
— | 4,391 | 594 | 1,060 | — | 6,045 | ||||||||||||||||||
| Total equity |
182,696 | 8,227 | 237,868 | 28,425 | (268,475 | ) | 188,741 | |||||||||||||||||
| Total liabilities, redeemable noncontrolling interests, and equity |
242,060 | 26,841 | 275,867 | 72,473 | (284,533 | ) | 332,708 |
Note:
| (1) | It represents the elimination of the |
| (2) | It represents the elimination of intercompany balances among Baidu, Inc., our subsidiaries and
|
| (3) | The loans provided to the nominee shareholders were RMB19.4 billion (US$3.0 billion) and RMB19.1 billion as of December 31, 2021 and 2020, respectively, which will mature from 2023 to 2047. The loans provided to the nominee shareholders were to fund the capitalization of the VIEs for which the Company does not intend to seek repayment. The term of all such loans provided to the nominee shareholders has historically been extended prior to their respective original maturity dates, and we will continue to extend the term of all outstanding loans before they become due. |
Division of Corporation Finance
Office of Technology
Securities and Exchange Commission
October 31, 2022
Page 6
Selected Condensed Consolidateding Cash Flows Information
……”
Financial Information Related to the Consolidated Affiliated Entities, page 9
| 2. | In connection with your proposed disclosure in response to prior comment 5, please expand the Selected Condensed Consolidated Balance Sheets Information to include the Shareholders’ Equity Section which should be annotated so that your capital contributions, long-term loans, and short-term loans (if any) to the VIEs and the nominee shareholders are transparent. Additionally, revise the captions for all tables containing selected financial information to read as “Selected Condensed Consolidating...” |
In response to the Staff’s comment, the Company undertakes to revise the disclosure in its future Form 20-F filings to include the Shareholders’ Equity Section in the revised section headed “Selected Condensed Consolidating Balance Sheets Information.” Please refer to the selected financial information tables included in the Company’s responses to comment #1 above for the revised disclosure.
| 3. | Regarding your proposed disclosure provided in your response to comment 5, please explain to us why you do not present an intercompany receivable related to the income from the VIEs rather than an investment account. In this regard, it does not appear that the WFOE holds any investments in the VIEs. |
In response to the Staff’s comment, the Company undertakes to revise the section headed “Selected Condensed Consolidating Balance Sheets Information” in its future Form 20-F filings by separately presenting the contractual interests in the VIEs and VIEs’ subsidiaries from investments in subsidiaries. Further, the Company undertakes to revise the section headed “Selected Condensed Consolidating Statements of Comprehensive Income” in its future Form 20-F filings by separately presenting the respective primary beneficiaries’ share of the income (loss) in the VIEs and VIEs’ subsidiaries as “Share of income (loss) of the VIEs and VIEs’ subsidiaries.” Please refer to the selected financial information tables included in the Company’s responses to comment #1 above for the revised disclosure.
Notes to the Consolidated Financial Statements
1. Organization and Basis of Presentation
Equity Pledge Agreement, page F-18
| 4. | We note your response to comment 8. Please make clear if any of the VIEs are currently involved in sectors on the “Negative List” which are restricted and/or prohibited for foreign investment. In this regard, we note that this appears to be the case as implied in the first paragraph of page 3 of your filing. |
Additionally, with respect to the opinion of counsel regarding the VIEs “based on the PRC laws and regulations publicly available and currently in force as of March 28, 2022,” please clarify if you are operating within a five-year transition period to comply with all requirements of the Foreign Investment Law or have already effected necessary structural changes, if any.
Division of Corporation Finance
Office of Technology
Securities and Exchange Commission
October 31, 2022
Page 7
The Company respectfully advises the Staff that the internet content, value-added telecommunication-based online marketing, audio and video services and mobile application distribution businesses in which the VIEs are currently involved are restricted and/or prohibited for foreign investment according to the “Negative List.”
In response to the Staff’s comment, the Company undertakes to revise the disclosure as follows (page references are made to the 2021 Form 20-F to illustrate the approximate location of the disclosure) in its future Form 20-F filings (with deletions shown as strike-through and additions underlined):
Page 3:
“Baidu, Inc. is not
a PRC operating company but a Cayman Islands holding company with operations primarily conducted through (i) our PRC subsidiaries and (ii) contractual arrangements with its consolidated affiliated entities based in China. PRC laws
and regulations restrict and impose conditions on foreign investment in Our internet content, value-added telecommunication-based online marketing, audio and video services and mobile application distribution businesses in the PRC
have been conducted through the applicable VIEs in order to comply with the PRC laws and regulations, which restrict and impose conditions on foreign direct investment in companies involved in the provision of such businesses.”
Page F-19:
In response to the Staff’s further comment, the Company proposes to further revise its disclosure based on the Company’s response to the Staff’s comments submitted on August 2, 2022, on page F-19 of the 2021 Form 20-F, as follows in its future Form 20-F filings:
“On January 1, 2020, the Foreign Investment Law came into effect and became the principal laws and regulations
governing foreign investment in the PRC. The Foreign Investment Law does not explicitly classify contractual arrangements as a form of foreign investment, but it contains a catch-all provision which includes investments made by foreign investors
through means stipulated in laws or administrative regulations or other methods prescribed by the State Council. There are uncertainties regarding the interpretation of the Foreign Investment Law with respect to the contractual arrangements as a
form of foreign investment. Since the VIEs’ internet content, value-added telecommunication-based online marketing, audio and video services and mobile application distribution businesses in the PRC are included in the negative list or
subject to the restrictions on foreign investment, if If any of the VIEs would be deemed as a foreign invested enterprise and any of the Company’s business would be included in any negative list or other form of
restrictions on foreign investment, the Company’s current organizational structure could be in violation of existing and/or future PRC laws or regulations and could limit the Company’s ability, through the Primary Beneficiaries,
to enforce its rights under these contractual arrangements with the VIEs and the Company’s ability to conduct business through the VIEs could be severely limited.”
Division of Corporation Finance
Office of Technology
Securities and Exchange Commission
October 31, 2022
Page 8
With respect to the structural changes required by the Foreign Investment Law, the Company respectfully advises the Staff that in accordance with the Foreign Investment Law, foreign invested enterprises with the supreme authorities being the board of directors should change their supreme authorities to the shareholders’ meeting within a five-year transition period after January 1, 2020. Considering that the WFOEs have been set up with the supreme authorities being the shareholders’ meeting, the corporate structure of such WFOEs established prior to the effectiveness of the Foreign Investment Law complies with the requirements of the Foreign Investment Law and the Company believes it is not necessary to make corporate structural changes on such WFOEs.
* * *
If you have any additional questions or comments regarding the 2021 Form 20-F, please contact the undersigned at +86 10 5992 8888 or the Company’s U.S. counsel, Shu Du of Skadden, Arps, Slate, Meagher & Flom LLP at +852 3740 4858 or shu.du@skadden.com.
| Very truly yours, |
| /s/ Rong Luo |
| Rong Luo |
| Chief Financial Officer |
| cc: | Robin Yanhong Li, Chairman and Chief Executive Officer, Baidu, Inc. |
Shu Du, Esq., Partner, Skadden, Arps, Slate, Meagher & Flom LLP
Hua Ying Li, Partner, Ernst & Young Hua Ming LLP