A fillip to Facebook's China outlook

Facebook's access to China could be buoyed by an office in Beijing the company is now considering. But it still has a fight against local rivals, which are growing in global influence and may co-operate with the government to try to thwart its efforts.

When it was blocked by China’s censors just after the Xinjiang riots of 2009, Facebook’s fate in the Middle Kingdom seemed sealed. The social network looked like it was never going to get access to the Chinese market – a fact reflected in the new nickname it received from netizens: 非死不可 “fei si bu ke” or “doomed to die”.

But five years after being thrown over the Great Firewall, Facebook is now considering opening a sales office in downtown Beijing, according to Bloomberg News.

In a statement to Bloomberg, Vaughan Smith, vice president of corporate development at the company, said that currently ad sales for Chinese companies were being handled out of Hong Kong but that “we are of course exploring ways that we can provide even more support locally and may consider having a sales office in China in the future.”

In the short term it seems this is a good enough reason for setting up an office in Beijing. After all, Facebook’s ad revenue from Asia has jumped from $US118 million at the time of its IPO in May 2012 to $US354 million in the first quarter of 2014.

“Longer-term the question becomes whether or not having an office there is going to help them in their talks with the government to actually launch a Chinese social networking site that agrees with the censors of some kind,”said Ben Cavender, a principal at Shanghai-based consultancy China Market Research.

“My guess is it’s something that they are probably constantly evaluating and looking at whether it’s a feasible scenario.”

While probably still a long way off, it’s not an entirely unfeasible scenario. Facebook’s own properties Instagram and WhatsApp have gone under the censor’s radar so far.

And in late February, professional social networking platform LinkedIn launched a Chinese-language website in the country.

In order to gain access, the Chinese version of the site has dropped group discussions and LinkedIn CEO Jeff Weiner said he expected requests by the Chinese government to “filter content.”

It’s also been reported that that one of the requirements for LinkedIn’s licence in China was that it would have to store data about its citizens on servers within the country.

Mark Zuckerberg has long signalled that Facebook is willing to adapt to local conditions. In Germany the company censors Nazi references and in Pakistan it doesn’t allow pictures of the Prophet Muhammad.  

Zuckerberg himself has been studying Chinese mandarin and has travelled to the country a couple of times in recent years.

But it’s not just the Chinese government Facebook has to worry about. Speaking at the Asia Society Google’s former Director of Global Public Policy, Andrew McLaughlin, said working with the Chinese government was “excruciating” but even worse was dealing with the aggressive behavior of the group’s competitors — in particular, in their case, Baidu.

“What Baidu was brilliant at doing was ratting on Google” McLaughlin said.

“So Baidu would just have a plant in Beijing which would basically go file reports with the Chinese government – ‘Look at this horrible thing about Hu Jintao you can find on Google, look at this terrible stuff’.”

According to McLaughlin, it was a deliberate competitive strategy designed to disable Google from being a viable competitor in the Chinese market.

“It worked brilliantly. They ended up with, you know, 80 per cent of the search market over there.”

But while for the most part Google only had to worry about Baidu within the Chinese market, Facebook will have to battle Tencent’s WeChat around the world.

McLaughlin singles out the messaging app WeChat as an example of genuine Chinese tech innovation that represents the “triumph of mobile” in the country.

WeChat has 370 million monthly active users, is growing market share in other Asian markets and is starting to take on Facebook in other developing markets and even in the US.

Unlimited SMS offerings in the US have slowed the development of more sophisticated messaging apps there. According to a Nielsen study, around 70 per cent of smartphone users in South Korea and China use messaging apps at least once a month, compared to just 30-40 per cent in the US and UK.

And unlike WhatsApp and Facebook Messenger, WeChat has a proven business model in its monetisation of gaming and advertising.

If Facebook’s purchase of WhatsApp for the unprecedentedly large sum of $US19 billion proved anything it’s that the company is prepared to dig deep to reach its goal to "connect the world’s people".

And what faster way of reaching that goal than getting access to the Chinese market?

As Zuckerberg himself has said: “How can you connect the whole world if you leave out 1.6 billion people?”

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