Facebook’s long march to China

James Riley
Editorial Director

Facebook has been bending over every which way to somehow get back into China after the country’s so-called Great Firewall was significantly jacked up in July 2009, blocking western social media.

The first of the giants impacted where Facebook and Twitter, and later others such as Instagram and Pinterest were also targeted.

On July 24 Facebook finally appeared to have slipped a foot in the door, announcing it had negotiated for “an innovation hub” to be based in the southern city of Hangzhou, famously the hometown of Chinese internet behemoth Alibaba.

Mark Zuckerberg: Had been looking to tap into China’s AI prowess

The facility would be run by Facebook’s subsidiary in Hong Kong, the Special Administrative Region where it continues to operate (just as it continues to operate in SAR Macau.) The aim was to tap China’s rapidly growing technical prowess in new technology areas like artificial intelligence and machine learning.

Then, just as suddenly and only a day later, the deal was nixed by Beijing. Facebook’s approval was withdrawn. According to the New York Times, citing an unnamed source, the reason was a dispute between officials in Beijing and Zhejiang province, where Hangzhou is the capital.

Right there is a classic lesson for any brave company trying to navigate the labyrinthine Chinese bureaucracy.

The on-again off-again deal comes amid a growing US-China trade war, effectively kicked off by concerns over ‘technology transfer’ that were escalated by Donald Trump in late 2017.

After being charged with investigating the subject, in March the US Trade Representative, concluded that Chinese government’s policies – most notably its “Made in China 2025” plan for technological development – “involve[d] the acquisition of foreign technologies through acts, policies, and practices of the Chinese government that are unreasonable or discriminatory and burden or restrict U.S. commerce.”

Shortly afterward, the US began imposing traffic on Chinese technology and has threatened to raise tariffs across the board.

Unable to directly retaliate as the US only sells China US$130 billion in good and services each year, observers have suggested that investment restrictions would be a key plank in Beijing’s fightback plan.

It is clear that Facebook’s interest in China is not now for social media purposes. Local groups like WeChat and Weibo have that market stitched up.

Rather, China is key to its advertising revenues, and it also wants to tap into the nation’s swelling technology engineering skills, a sector at the very top of leader Xi Jinping’s list for targeted growth sectors.

“Our efforts would be focused on training and workshops that help these developers and entrepreneurs to innovate and grow,” a Facebook spokesperson told CNBC.

It was recently revealed, according in a report by Pivotal research analyst Brian Wieser, that as much as 10 per cent of Facebook’s global revenue – or about US $5 billion – already comes from China, making China the second-largest ad spender on Facebook behind the US.

“Facebook has filed its 1Q18 10-Q, and from it we identify important considerations related to the company’s regional revenue trends. New disclosures allow us to see revenues by billing address for customers – advertisers, primarily, rather than users – in each of four regions and give us new clues about the importance of Chinese advertisers to the company,” Mr Wieser write in a client note he provided to InnovationAus.com.

Facebook’s original block came immediately after deadly ethnic riots (between local Muslim Uyghurs and majority Han Chinese) in Urumqi, the capital of the far flung province of Xinjiang the Uyghurs call home.

Riot organisers had been found to be using the social network to spread word of their plans.

A year later Google voluntarily left China, saying it was sick of caving in to censor requests from Beijing. Now it’s impossible to use Google’s other services such as Gmail and Apps without a virtual private networks that allows users computers to jump over the GFC by linking to servers outside China.

Beijing’s censors continue to block western sites, the number as of May 2018 was 8,000.

After taking a breather for a few years, Facebook began its long courtship of Beijing, it’s founder and chief Mark Zuckerberg, launched into learning Mandarin (his US born wife Priscilla Chan grew up speaking Cantonese as her parents were Hoa – ethnic Chinese – refugees from Vietnam).

Zuckerberg and Facebook chief executive Sheryl Sandberg seemed to be in China every other month in recent years, and the company – along with other US tech giants – has its senior executives speak at every major Chinese technology conference.

But in many ways Facebook is now playing catch up in China to Google and others in a bid to tap into Chinese technology know-how, as even faster processing means more engineers are needed in the tech race.

Last December, Google announced the opening of the Google AI Centre China in Beijing.

“I believe AI and its benefits have no borders,” Fei-Fei Li, former Stanford University Professor and chief scientist of AI and machine learning at Google Cloud, who will head the new facility, said in a statement.

“Whether a breakthrough occurs in [the] Silicon Valley, Beijing or anywhere else, it has the potential to make everyone’s life better. As an AI-first company, this is an important part of our collective mission.

“And we want to work with the best AI talent, wherever that talent is, to achieve it,” he said.

In June 1018, Google announced a $550 million investment in JD.com, China’s no. 2 e-ecommerce site after Alibaba, owned by Tencent Holdings, the group that runs China’s pervasive social media application weixin (weChat).

Still, other international tech companies, notably Microsoft and business market social platform LinkedIn have maintained a presence by censoring content at Beijing’s request.

The diplomatically extremely flexible Microsoft, has already partnered with more than 10,000 Chinese companies already, and is wading deep into the Chinese AI market with a China-only chatbot called Xiaoice being tested on hundred of millions of people via phone calls.

As the MIT Technology Review recently noted, AI is the new space race, and the US tech is looking for its “sputnik” moment, which – ironically – it might now find it in China. But right now it won’t be by Facebook.

Do you know more? Contact James Riley via Email.

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