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Just Hours After Approval, China Kills New Facebook Venture

Published: July 25, 2018
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Source: ZeroHedge

Yesterday, to much fanfare, Facebook announced that it has set up a subsidiary in China and plans to create an “innovation hub” to support local start-ups and developers in an effort to cozy up to Beijing an ramp up its presence in the world's most desired market where its website remain blocked.

The Chinese subsidiary was registered in Hangzhou, home of e-commerce giant Alibaba Group Holding Ltd, according to a filing approved on China’s National Enterprise Credit Information Publicity System last week and seen by Reuters on Tuesday.

“We are interested in setting up an innovation hub in Zhejiang to support Chinese developers, innovators and start-ups,” a Facebook representative told Reuters via email, referring to the Chinese province where Hangzhou is located. Facebook has created similar hubs in France, Brazil, India and Korea to focus on training and workshops, the spokesperson said.

The news quickly sent FB stock soaring, hitting a new all time high.

The logic begin Zuckerberg's investment is simple: Facebook remains banned in China, which strictly censors foreign news outlets, search engines and social media, including Twitter and Google. And while Facebook claimed that setting up a company-owned enterprise in China does not mean Facebook is changing its approach in the country, many took that statement with a skeptical smile.

And apparently, so did China, because the NYT reports today, "for Facebook, success in China was brief. Very brief"

Because just a few hours after a Chinese government database showed that Facebook had gained approval to open a subsidiary in Zhejiang, the registration disappeared and references to the subsidiary were partially censored in Chinese media.

24 hours later, the approval has been withdrawn, according to a NYT source.

China's swift reversal to take pull the approval came after a disagreement between officials in Zhejiang and the national internet regulator, the Cyberspace Administration of China, which was angry that it had not been consulted more closely, the NYT adds.

And while the abrupt and unexpected about-face does not definitively end Facebook’s chances of establishing the company, "it makes success very unlikely" the person said.

Here there are three alternative interpretations of what just happened:

According to one, the strange incident underscores how much of a challenge it has become for the globe-spanning social network to get into China, even just to open an innovation center.

While Facebook had hoped to dip a toe in the market and work with Chinese developers, its very presence appears to have become a large, and incendiary, political question here.

The snafu also demonstrates how complicated China’s bureaucracy can be:

Foreign companies seeking to expand here must navigate a vast and decentralized government in which provinces, cities and ministries all vie for influence and power. While one part of the government may be happy to support a foreign company like Facebook, that could ruffle feathers elsewhere. Facebook seems to have fallen victim to such a scenario.

Finally, the third possible explanation is that China is increasingly responding to Trump's trade war using non-tariff means, such a blocking the QCOM/NXP merger - which could take place in just hours - or preventing some of the most popular US companies from establishing a presence (even though Elon Musk was recently successful, allegedly, in getting permission to build a new factory on the mainland).

As for Facebook's Chinese ambitions, they may have reached the end of the line: angering officials at China’s internet regulator could make progress particularly difficult, especially as new personnel have just taken over managing the relationship with the Chinese government.

At the end of last year, Facebook’s former head of government relations, Wang-Li Moser, left the company. Ms. Moser, who had been brought in from Intel to help Facebook court China’s leadership, had become a sign of the company’s ambitions, though she struggled to make headway.

Stepping in to replace her has been Zhang Jingmei, who created the company that ran the anonymous Colorful Balloons app, and William Shuai, who was once a low-level Chinese official. Both were listed on the board of the newly created, and quickly disappeared, subsidiary in Zhejiang, the NYT concludes.

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