For a long time, we knew that Mark Zuckerberg, Facebook’s CEO, wanted badly to expand his presence into China. Today, we learned just how badly he wanted to get into China. According to All Things Digital, Facebook and Baidu, China’s leading search engine company, plan to form a joint venture company to set up a Chinese version of Facebook, complete with servers hosted in China. For many US companies such as Yahoo! and Google, the whole idea of hosting servers where Chinese citizens can post all their personal information, and where it can be seized anytime by the Chinese authorities, especially the Ministry of Public Security, is a very uncomfortable issue and a high entry cost they must pay to have a presence in China. Several years ago, Jerry Yang of Yahoo! had to testify before Congress about Yahoo! China’s decision to hand over the email accounts of several dissidents to the Chinese authorities, a decision which Yang claimed was made without consulting the US headquarters. The political fallout was so great that Yahoo! eventually sold all of its China assets to Alibaba, China’s leading e-commerce company.
The whole issue of getting permission from the Chinese government has long been a touchy issue, since the Chinese authorities are not in the habit of publicly stating their policy. This was what happened with Google in China last year. Instead of publicly stating their policy beforehand, they frequently take a wait and see attitude, and slam any violations after the fact.
Unlike in most other countries, the Chinese government issues Internet Content Licenses (ICPs) to websites, which must be renewed through the Ministry of Public Security every year. For non-Chinese companies, these licenses are very hard to get; Google has had to rely on a local Chinese partner to get a licence to operate in China. On Chinese websites, it is the red shield which shows up in the footer of each page. Clicking on the red shield will take you to the owner (as in person, not corporation) of the website, complete with their email address and phone contact information.
It is not uncommon for Internet companies in China’s highly competitive environment to rat on each other’s content to the Ministry of Public Security. The Chinese government, which is always hypersensitive when it comes to political issues and content, will then issue a takedown order, usually by phone, to the chief editor of the violating company. Using the government to take out one’s competition is a variation of the old Chinese strategy of “borrowing a knife to kill your enemy”, in these cases, the knife comes courtesy of the Chinese government.
In the case of extreme violations, the licence can be revoked by the MPS. In the case of the Facebook-Baidu joint venture (JV), it is likely that Baidu will hold the ICP of the new company; meaning that Baidu would likely be pushing to become the majority partner, since Facebook would be unable to operate in China without an ICP licence of its own.
Another reason for Baidu likely taking a majority position is that it has to take the risk over handing the content, hosting the servers and dealing with the Chinese government. In the initial phase, Facebook will reap the benefits of being able to provide advertisers with finely tuned targeting of Chinese consumers, who just happen to be the only consumer group worldwide who are still growing at a brisk rate. Like governments, advertisers want to know all they can about users but for very different reasons. While the Chinese government doesn’t have a clear profit motive in mind, advertisers do. For advertisers, Facebook is a dream come true because it provides ad targeting down to the individual level. Combine that with China, and it’s easy to see why Mark Zuckerberg wants to get Facebook into China so much.