Market analysts are predicting a significant drop in ad revenues due to recently imposed regulations by the Chinese government which will add a hefty amount of tax on search engine ads. Among the companies which are expected to receive a major blow are tech giants like Alibaba and Baidu.

The Chinese State Administration for Industry and Commerce issued new rules regarding the classification of Internet ads. The new rules were announced last week and will take effect in September.

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Once the new rules take effect, paid searches will be treated as regular Internet advertising and revenue would be subjected to an additional three percent tax.

Considering these upcoming rise in taxes, Baidu, China's most popular search engine, could see its fiscal earning for 2017 drop to 16.3 billion yuan (roughly $2.4 billion), according to Daiwa Capital Markets. That figure is about four percent below the average of estimates which was compiled by Bloomberg.

In a report submitted by Daiwa Capital Markets analyst John Choi, he said, "We would expect the market to cut its 2017-19 earnings forecasts for Baidu and Alibaba given the additional surcharge burden."

The Chinese government decided to step up its ad regulation policies back in April when a 21-year-old university student died from a rare form of cancer after using Baidu to look for treatment. The student named Wei Zexi posted statements online accusing Baidu of promoting inaccurate medical information.

According to Investors, the news caused Baidu's stock to fall by 2.2 percent. The eventual fallout also affected highly-rated internet stocks like Weibo and NetEase.

TagsBaidu, china, China tech company, China Tech, Alibaba, china internet, Internet, China Internet regulation