New rumors say that Facebook may sell stock to China, prompting concerned parties to worry what that means for the site.
An anonymous source “at a fund that buys stock from Facebook employees” told BusinessInsider that China wants to buy a considerable amount of Facebook. How much exactly? Enough “to matter.” Other rumors say that two independent wealth funds are trying to buy $1.2 billion worth of Facebook stock, and one of them also happens to be from China.
There’s been plenty of back and forth about whether or not this matters, what China’s motivations for the proposed investment are, and what the consequences for Facebook users could be. But it has become obvious that Facebook is at the very least interested in what to do with China. Mark Zuckerberg famously posed the question about whether you could connect the world without including its largest country, and there have been rumors about his company meeting with executives from Baidu, China’s largest search engine.
Given Facebook’s reach and magnitude and China’s tightly-wound censorship policies, there’s bound to be some discourse about a potential partnership. Here are some of the concerns the rumors are inspiring, as well as the reality of the speculated investment.
Since Google’s well-documented struggles with China and the more recent alleged Gmail hacks, there has been some suspicion attached to the country and its Internet game, to say the least. Couple this with the apparent tension regarding the Facebook Revolutions and how they have even minimally affected the country, and you can guess how tightly controlled social media is there.
This has prompted some concern over the idea China that could own a considerable piece of Facebook. Given the Chinese governments’ concern about how influential social media can be, it could use this ownership to try and control its citizens. Would this affect US users? It seems unlikely. Earlier this year, we heard about the possibility of a Chinese version of Facebook, which would look and act like Facebook as we know it, but would be censored by the Chinese authorities. A warning would notify outside users that connecting with Facebook China users means their information and interactions also fall under the country’s censorship policy.
Are these concerns warranted? Not entirely. Hearing “Chinese censorship” attached to the idea of something so integrated to our digital lives as Facebook mostly just sounds scary. Thanks to the Gmail hacking-bit, there’s a sensitive trigger that goes off. But there are a few reasons it might not need to. First of all, since Facebook is still a private company, investors can only buy non-voting stock so affecting the site’s infrastructure would be tricky.
If you want to get extremely anxious about it, you could reason that Facebook is so desperate for China’s hoard of potential users that it would strike some compromise where it would collaborate with the country’s restrictions, possibly even allow it to check on any dissident information coming from outside China – but we’re pretty sure that sort of talk is being circulated by conspiracy theorists alone. Non-voting shareholders don’t have access to Facebook’s user database, and China would have to invest far more than it is rumored to if it wanted significant influence over Facebook once it files IPO.
The real problem for Facebook in all this wouldn’t be losing control, it would be avoiding a storm of negative publicity. Allowing China to invest and possibly creating a censored version of the site would undoubtedly cause privacy advocates to cry foul, and it could find itself in a situation reminiscent to Google’s own struggles with the country.
On Thursday, Business Insider reported that China is trying to buy “a huge chunk” of Facebook.
According to the business news website, Beijing approached a fund that buys stock from former Facebook employees to see if it could assemble a stake large enough “to matter.” Moreover, Citibank is rumored to be trying to acquire as much as $1.2 billion of stock for two sovereign wealth funds, one from the Middle East and the other Chinese. Business Insider reports a third source, from a “very influential” Silicon Valley investment bank, confirms that Citi is representing China.
Should Beijing be allowed to buy a part of Mark Zuckerberg’s site? Business Insider tells us there is “little need” for concern about Chinese censors looking at the photos and postings of the 700 million people who trust Facebook with their personal online activity.
First, China’s position won’t be large. A billion-dollar investment does not buy much influence in a site expected to be worth a hundred times that when it goes public. Second, Beijing will be acquiring nonvoting stock. Third, shareholders don’t get the right to look at what’s on the site. All of these arguments from Business Insider ring true.
Yet they are all beside the point—and there are other reasons to be concerned. The business site says that “sovereign wealth funds are pretty distinct from their governments.”
Perhaps Norway’s fund is, but not China’s. The Communist Party, despite three decades of economic reform, insists on its monopoly of political power. And to maintain that monopoly, it tightly controls its own instrumentalities. That’s especially true at this moment because the Party is in the midst of the most comprehensive crackdown on society since the 1989 Beijing Spring. Chinese leaders clearly view social media as a threat to their rule, especially after seeing its force-multiplying effect in the ongoing Arab Spring protests that have toppled governments.
In short, China’s sovereign wealth fund, which is no more independent of the Communist Party than the Beijing municipal government, wants to buy a stake in the world’s most prominent social networking site because Chinese leaders want to control social media. And they hope to do that as part of their comprehensive campaign to dominate the conversation about China—not just inside the country but around the world as well.
Beijing, during the last decade, announced initiatives to change discourse on foreign university campuses with its Confucius Institutes—now 322 of them—and Confucius Classrooms in elementary and high schools—369 of those. Moreover, its “go global” initiative is trying to affect news coverage of China by opening bureaus outside the country to internationalize state media, especially Xinhua News Agency, China Central Television, and People’s Daily.
And this is where the Facebook founder is giving Beijing an opening. Zuckerberg visited China in December and is scheduled to return, perhaps in September, in his bid to access the world’s largest online community, 457 million at last count.
“One big reason American firms stumble in China is that the government tends to favor locals when it comes to regulation,” Business Insider points out. “One way to make sure that doesn’t happen is to allow the government to own a stake.”
Beijing wants to own stakes in foreign firms because it is trying to control them. Its ambitions may at the moment look unrealistic to us, but that does not mean swaggering—and strategic-thinking—Communist Party officials do not hold them.
The cocky Chinese are not the only parties deluding themselves. Zuckerberg, in the words of one reporter, “believes that Facebook can be an agent of change in China, as it has been in countries such as Egypt and Tunisia.” After the disastrous China experiences of Yahoo and Google and the troubled history of Microsoft there—not to mention Beijing’s recent tirade against foreign social media—the Facebook founder appears both arrogant and naïve.
Chief Operating Officer Sheryl Sandberg is reportedly “wary about the compromises Facebook would have to make to do business there.” If she loses her argument with Zuckerberg and Facebook enters China, the company will eventually be subject to demands to censor its sites, those both inside and outside China. That’s apparently why the Chinese want to own a big stake in Facebook. They are, in short, looking for control in the long run. No other explanation is consistent with the Party’s other media and “educational” initiatives.
Of course, a Beijing-influenced Facebook will be hit by even more bad publicity—and inevitably defections. Other social networking sites will spring up to capture fleeing users. The genius of America is that its open and broad market eventually punishes the arrogant and the naïve by allowing choice.