As Google never tires of pointing out, Android is an open operating system. That means other companies can grab it and repurpose it to their ends–including competing with Google.
Baidu already has 75% marketshare in desktop search in China and since Google’s spat with China’s government it has been in a freefall there. We’re guessing Chinese handset makers and telcos don’t want to risk the Chinese government’s ire by partnering with Google for smartphones, and so partnering with Baidu instead makes sense.
It was to be expected, but it’s still pretty funny, that Baidu would use Google’s mobile advertising system to crush Google in mobile.