Last week, the story “leaked out” that a China sovereign wealth fund had expressed interest in purchasing a significant stake in Facebook. Lots of chatter then ensued about whether it was true, what it meant, and what “we” should do about it. (No, I don’t really know who “we” are.)
Allow me to be blunt on this issue: from a legal/investment perspective, I don’t give a shit if China wants to buy part of Facebook. Their motives for doing so are irrelevant as long as no laws are broken, and all the chatter about whether such a deal is a good idea is a negative influence on inward foreign investment in the U.S., and possibly corresponding deals in China by U.S. firms.
Since the last hand-wringing article I saw on this was from Gordon Chang at Forbes, and because I enjoy reading and criticising Chang’s columns, I’ll get my quotes from that source. Chang’s opinion mirrors others I’ve seen over the weekend.
Chang starts with this question:
Should Beijing be allowed to buy a part of Mark Zuckerberg’s site? [my emphasis]
And just like that, he loses me at the very start.
I’d like to know who is doing the “allowing” here. Is Chang suggesting that a Facebook stock purchase be subject to U.S. national security review? That’s a suggestion so utterly preposterous that when I read that line, I laughed so hard that I snorted a little and woke up the cat. But then I realised this was no laughing matter, but a possible protectionist move that could lead to reciprocal actions by the Chinese government against U.S. investors.
And what could possibly justify the U.S. rejecting such a deal? At first glance, the details (Chang cites to reporting done by Nicholas Carson at Business Insider) look quite innocuous:
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.
Do you hear a “but” coming on? You’re right. Chang goes on to say that something even more important, and insidious, is at play here. Chang believes that China’s sovereign wealth fund, which he says is tightly controlled by Beijing, would like to buy into Facebook because China is trying to influence social media, which the Communist Party sees as a threat.
Chang is certainly right (and Carson was wrong) that China’s sovereign wealth fund isn’t independent. But so what? I’m not sure if he read those arguments from Business Insider very carefully, because the point there was that China’s motives are irrelevant! If they did buy a stake, it would be too small and not include any special rights.
Failing to address this, Chang goes on to talk about scary Chinese public image campaigns like the Confucius Classroom to illustrate China’s global propaganda initiatives. Again, I agree that China is engaging in this sort of thing (although the Confucius Classroom is a rather benign language program), but what does this have to do with stopping a Facebook share purchase?
Chang also discusses Facebook’s future China plans and how a government stake might help grease the regulatory wheels. Sure, that makes sense. But he then goes on to suggest that Beijing’s motive here in purchasing stock is to control the company.
This makes no sense. Not only would the stake being discussed give China zero ability to control anything, but owning a chunk of Facebook is wholly unnecessary anyway.
If Facebook really wants to do business here in China, the government has all the leverage it needs without buying anything. Not only would Facebook have to comply with all local censorship rules, but with an onshore Facebook, China would have all sorts of other regulatory tools at its disposal to keep the U.S. firm in check. So why waste a billion dollars?
So I’m left with multiple layers of confusion here. First, it appears as though this deal would not give China any control over Facebook at all. Second, even if it did, China doesn’t really need additional leverage over Facebook. Third, assuming that such a stock purchase would allow Beijing to muck around with the social media company in terms of privacy and censorship, how would this justify U.S. government action?
Even if Zuckerberg wanted to sell some Facebook shares to Satan, the U.S. government would have no legal grounds to get involved.
To wrap this up, Chang does end on a high note by saying that if Facebook decided to cozy up to Beijing and make changes to privacy and content policies, it would be hit with mass user defections. I agree. So why even bother discussing whether the deal should be “allowed” or not?