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Sebastian Cohen examines both the wisdom and madness of China's online empire builders in a quick read in this month's China International Business (the one with JP Morgan's Jing Ulrich on the cover.)

My take on China's online giants expanding their reach is mixed, and Sebastian quotes me to that effect:

'Baidu (NASDAQ:BIDU), China's search engine giant, has been as active as anyone else in the quest for new businesses. March appears to have been a busy month for the company as it contemplated the acquisition of B2B e-commerce site Netsun Toocle while simultaneously planning to start a new e-book publishing venture which would offer a wide range of licensed content. David Wolf, of Wolf Group Asia, sees Baidu as having one of the more questionable expansion policies. "They continue to expand into unprofitable or complex businesses like online video or e-commerce even before fixing the fundamental issues in their core business; which is selling search ads," he says. "Normally there would be nothing wrong with that, but at a time when the company is hemorrhaging management talent and the largest competitor appears poised to leave the market, is this the time to take your eyes off the ball?"'

China's companies have a long and undistinguished record when it comes to diversification, even when moving into similar industries, and even under the best possible circumstances. Baidu in particular faces some major challenges and opportunities in the coming months.

But I don't mean to pick on poor old Baidu. It is hubris season around here since Google (NASDAQ:GOOG) packed off to Hong Kong, and it would be very easy for a brilliant Chinese Internet entrepreneur to decide that the time has come to turn his business into an online conglomerate, or to make an ambitious play to globalize.

Focus, guys. The real opportunities are right here. There will be plenty of time to play diversification and M&A games when growth in China settles down a bit.

Source: China's Internet Empires: Keeping Your Eye on the Ball