Talking Point

Zuck networks in China

The Chinese block Facebook, but its founder covets access to huge market

From Harvard to Hangzhou: Zuckerberg and girlfriend Priscilla Chan

First it was eBay, then Yahoo, and more recently Google. But will Skype be the next foreign internet firm to withdraw from China?

In late December, China’s Ministry of Industry and Information Technology (MIIT) announced that all voice-over-internet-protocol (VoIP) telephone services other than those provided by the country’s state-owned telecom carriers were “illegal” and will face closure.

The news, published on the People’s Daily website, quickly fuelled speculation that Beijing was going after Skype, which is VoIP-based. Even though Skype says it is yet to see any change in official treatment, the announcement sounds ominous. Skype claimed it had more than 88 million registered users in China at the end of June last year.

The timing of the crackdown (if it turns out be one) is a little awkward for one of the better known tourists visiting China over the festive period. That’s because a week before MIIT’s announcement, Facebook founder Mark Zuckerberg was seen ‘holidaying’ with his girlfriend Priscilla Chan in China, where his website has been blocked since 2009.

Facebook’s mission may be to make the world “more open and connected”. But try and access the site in China, and you’ll have to content yourself with an “Error 404: File not found” message.

So, though Facebook has claimed that Zuckerberg’s trip to China is strictly personal, his visit has sparked a lot of speculation: is he trying to broker a deal to get Facebook back into the country?

Quite social, and a lot of networking…

Aside from a visit to the Summer Palace, Zuckerberg – recently anointed TIME magazine’s Person of the Year – was spotted having lunch with Robin Li, chief executive at Baidu, China’s largest search engine. That was later followed with a meeting with Wang Jianzhou, chairman of the country’s largest mobile operator China Mobile, and then with Charles Cao, chief executive of Sina. A Sina spokesperson told Bloomberg that Zuckerberg met with Chao to discuss China’s internet market – the 26 year-old American particularly wanted to learn about the mainland company’s Twitter-like microblogging product, Sina Weibo.

Zuckerberg then travelled south to Hangzhou, where he met up with Jack Ma, the chief executive of Alibaba Group, before linking up with Jonathan Luk, head of online retail juggernaut Taobao.com, Alibaba’s online shopping site.

It may not sound like everyone’s idea of a vacation, but meeting with industry leaders like these is a smart move. Zuckerberg knows cracking China’s internet market will be tricky. The meetings may give him some ideas on how best to try.

With almost 500 million active users, does Facebook really need China?

It would certainly help keep Facebook growing fast. Zuckerberg told an industry gathering last summer that he is hoping for a billion Facebook users within five years, and although he’s overseen some pick up in other markets where he wants a bigger presence (South Korea, Russia and Japan especially), he must be hoping to get much of the boost-to-a-billion from access to China. Research firm Analysys estimates that Chinese social networking sites had 176 million users themselves last year, up 68% from the year before, and that the growth trend will continue for some time.

Pulling in a similar audience would help supercharge a future stock price, of course. Early this week Facebook completed a $500 million fundraising, valuing the company at $50 billion. But as Bloomberg TV anchor Betty Liu put it: “How much more upside can there be for Facebook if it can’t even operate in China?”

Will Beijing give the green light?

Partnering with a local player is a good move, the Southern Metropolis Daily reckons. It will be almost impossible to get licences without a local guide.

But even assuming that Facebook could achieve open access in China, it will inevitably have to play nice with the government. Beijing has long harboured suspicion about social media’s ability to connect and spread information quickly (Facebook’s putative Chinese version was spiked in 2009 in the days following the unrest in Xinjiang, when Twitter and – for a while – even text messaging services were also disabled).

Existing Chinese social network equivalents use filters and manual censors to block long lists of sensitive terms and topics. The question, asks the Economic Observer, is whether Facebook would consent to something similar?

Facebook has grappled with privacy concerns elsewhere, but treatment in China would be much more of an issue. Yahoo’s experience is a case in point, when it caused a stir by allowing the Chinese authorities to probe user emails in a hunt for political dissidents in 2005. The search led to the imprisonment of Shi Tao, a journalist.

Already, Zuckerberg has said Facebook is willing to make exceptions to some of its policies in certain markets (“We’d want to be pretty culturally sensitive”, was how Zuckerberg put it in relation to Chinese concerns). In fairness, the site does censor in other markets. In Germany, for instance, the company blocks Nazi content. But any extended form of self-censorship in China is likely to lead to criticism back home in the US.

What’s next?

This looks to be a testing year for Sino-US trade relations, and Zuckerberg may see that as an advantage in lobbying for market entry. China’s State Council would love to get the Google monkey off its back, and welcoming Facebook might make it look a little more foreign-tech friendly. And to help shrink the trade deficit, the Chinese government has been promoting US tech sales. For instance, the authorities have been ordering companies and local governments to buy genuine versions of Microsoft’s Windows 7, a move which is said to have helped the number of licences sold in China triple last year.

Whether Zuckerberg gets access or not, there is still the question of whether a readily-available Facebook would thrive in China. Some believe that China’s social networks are different to most other markets, with most internet users logging onto networking sites to play online games (see WiC89).

Others say that Facebook might struggle to overcome well-entrenched local players like RenRen and Kaixin001, which are both looking to IPO this year, says Reuters.

It doesn’t sound like Zuckerberg found the time to sit down with any of his potential rivals during his recent trip. A shame: it would have made for some interesting conversations. Most Chinese equivalents have aped Facebook rather deliberately. David Fitzpatrick, writing in the recently published The Facebook Effect, says that RenRen (which started as Xiaonei) originally even claimed to be a ‘A Mark Zuckerberg Production’.

No doubt Zuckerberg is itching to have a go at producing the real thing.


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