China to Buy Facebook

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.

So who says MySpace is dead? Perhaps Rupert Murdoch sold it too soon.

Source: Forbes