The week of May 3, 2015

Facebook’s long and winding road into China

By Aaron Sankin

Mark Zuckerberg has made no secret of his keen interest in China, and in recent months he’s subtly signalled his desire to overcome the ban placed on the social network by the Chinese government in 2009.

He put former Treasury Secretary Hank Paulson’s Dealing With China on the reading list for his personal book club. “Over the last 35 years, China has experienced one of the greatest economic and social transformations in human history,” Zuckerberg wrote about the selection. “Hundreds of millions of people have moved out of poverty. By many measures, China has done more to lift people out of poverty than the whole rest of the world combined.”

When China’s top Internet regulator, Lu Wei, visited Facebook’s Silicon Valley offices last year, Zuckerberg reportedly placed on his desk The Governance of China, by the country’s president, and told Lu he’d also bought copies for his colleagues. “I want them to understand the socialism with Chinese characteristics,” he was quoted as saying.

Zuckerberg has also spent the past few years learning to speak Mandarin—in part, he insists, to talk to his wife’s grandmother, who doesn’t speak English—and gave a 30-minute talk at Tsinghua University in Beijing.

Facebook’s interest in China makes business sense. As far back as 2009, people in China spent an average of 2.7 hours online per day, considerably more than other emerging economies like Brazil or India, according to a study by Boston Consulting Group. Research by marketing intelligence firm IDC shows 43 percent of worldwide technology sector growth will occur in China in 2015—approximately $465 billion in new tech purchases—which makes China and its hundreds of millions of Internet users a prime target.

Making that a reality is a complex endeavor. China’s insistence on maintaining tight controls over what its citizens do online would require Facebook to fundamentally redesign much of its flagship service and participate first-hand in censorship in a way that goes against the company’s commitment to protecting its user data from governmental interlopers, as evidenced by the perfect six-star rating on fighting U.S. government surveillance efforts it was awarded by the Electronic Frontier Foundation last year.

Even if Facebook reaches an agreement with regulators, in its absence China has developed its own competing social media platforms.

“Facebook has been studying and learning about China,” a Facebook spokesperson told the the Kernel, “but have made no decisions about how or if we will approach it.”

The company clearly has a lot of work to do.

Beyond the Great Firewall

Tightly controlling the Internet access of 1.4 billion people is certainly possible, but it takes a lot of resources. By one estimate, there are over 100,000 people employed in China censoring online content.

The most famous line of defense is the so-called Great Firewall, which blocks access to prohibited foreign sites like Facebook, Twitter, and censored news articles like the New York Timesexposé on the massive family wealth of former Prime Minister Wen Jiabao.

The state’s censorship mechanism is far broader than that. It also includes a system for monitoring activity inside the country called the Golden Shield—which, like the Great Firewall, was set up in the late 1990s. It’s more selective in its censorship.

In Facebook’s absence, China has developed its own competing social media platforms.

A study conducted by a trio of Harvard researchers analyzed millions of posts from approximately 1,400 Chinese social media sites. “Despite widespread censorship of social media, we find that when the Chinese people write scathing criticisms of their government and its leaders, the probability that their post will be censored does not increase,” the authors noted.

Instead, censored content tended to concern collective action. Whether supportive or critical of government efforts, these posts clearly make censors uncomfortable.

Updates about events like rioting by migrants in southern China city Zengcheng or the arrest of internationally renowned dissident artist Ai Weiwei were most likely to join the 13 percent of all Chinese social media posts the study found being censored.

All of this censorship can happen in real time, often within seconds, because the government isn’t doing it alone. Much of it occurs inside the private companies operating these online platforms.

“I think the government has been very clever with the way they’ve basically set up various regulations, rules, directives—some formal, some informal—about what is acceptable content online,” explained Jason Ng, a researcher with University of Toronto’s Citizen Lab who studies Chinese Internet censorship and has written a book on the subject, Blocked on Weibo: What Gets Suppressed on China’s Version of Twitter. “They’ve basically outsourced and decentralized censorship to all these different companies, threatening them with potential punishment of being shut down if they don’t do a good job.”

Similar threats have affected Web giants before. Before Google pulled out of the country, the company took a stand against government censorship by shutting down its China-based search engine and redirecting Chinese users to an uncensored version of the site operated out of Hong Kong. When the Chinese government threatened to revoke its ability to operate in the country, Google backed down and nixed the redirect. (Google eventually left China entirely after being hit with cyberattacks aimed at the Gmail accounts of Chinese human rights activists it believed originated from within the government.)

One study by a Rice University computer scientist estimated that the Twitter-like social network Weibo alone employs some 4,000 censors based on the speed and frequency of deletions.

Ng argues this system of self-censorship gives companies itchy deletion fingers. “If you’re relying on these companies to censor themselves, they’re more than likely to perhaps to over-censor, particularly when it comes to issues that might be borderline,” he says.

Navigating this censorship system is tricky for a high-profile network like Facebook. Other Facebook properties like Instagram and WhatsApp haven’t been subjected to mandated self-censorship, but both are marginal players in China. Facebook itself, which was seen throughout the international community as a crucial organizing tool for protesters during protests of the Arab Spring, would certainly be a different story.

LinkedIn or left out

If Facebook seeks to model a high-profile, U.S.-born social network adapted to the Chinese market, it should look to LinkedIn.

Without putting forth much effort, LinkedIn was able to attract 4 million Chinese users to its site, before company managers decided to go all-in on the market by opening an Chinese language site last year.

Bloomberg View columnist Katie Benner, who used to teach English in Beijing, recalls being asked repeatedly by her students to connect them with American corporations in the hunt for jobs. She sees the success of LinkedIn in China as a direct result of the network’s ability to make those connections in ways that homegrown competitors with largely domestic userbases simply cannot.

Posts advocating for collective action, whether supportive or critical of government efforts, clearly make censors uncomfortable.

“LinkedIn is a window onto, and in some cases a passport to, the middle class, white-collar professional world that Chinese citizens have craved ever since they traded in their Mao suits for Levis in the 1980s,” Benner writes.

Businesses launching websites in China are required to play by China’s rules—foremost among them, acquire an Internet Content Provider (ICP) license from the government. For a foreign company to obtain a license, it has to partner with a Chinese firm. LinkedIn created a separate entity for its Chinese business and gave 7 percent of it to a pair of prominent Chinese venture capital firms.

Acquiring the license comes with a number obligations, like participating in censorship. Company CEO Jeff Weiner wrote in a blog post announcing the launch that it was a sacrifice the company was willing to make.

Expanding our presence in China presents a challenge that our company must address directly, clearly and in a manner consistent with our core values. As a condition for operating in the country, the government of China imposes censorship requirements on Internet platforms. LinkedIn strongly supports freedom of expression and fundamentally disagrees with government censorship. At the same time, we also believe that LinkedIn’s absence in China would deny Chinese professionals a means to connect with others on our global platform, thereby limiting the ability of individual Chinese citizens to pursue and realize the economic opportunities, dreams and rights most important to them.

The New York Times reports LinkedIn employs algorithmic and human censors to block objectionable content from reaching Chinese audiences. Users writing something blocked in China get notifications that their post is censored in China. Chinese LinkedIn users can’t participate in groups or compose long posts. There were some issues when censored posts written in China would be not only be inaccessible to users within the country but to everyone on the network. The company later changed that policy after an outcry among users.

LinkedIn did not make any employees available for an interview regarding the company’s China operations.

Censorship isn’t the only, or even necessarily the biggest, hurdle facing foreign Internet companies operating in China. ICP licenses require some firms, like those in the social networking sector, to host data on Chinese users on servers in China. This type of localization allows the government access to that data whenever it wants.

“Essentially any data in a server in China, if the company wants to stay in existence, if the government asks them to hand it over, they will have to,” explained Jeremy Goldkorn, manager of the Financial Times’s China-focused business research firm Danwai, who noted that Chinese leaders have taken to labeling the concept Internet sovereignty. “It’s just the cost of doing business there. Either you keep the data out of China, or it’s in China and that’s the risk you face.”

Businesses launching websites in China are required to play by China’s rules.

Yahoo discovered the squeeze these demands put on companies first-hand after it sparked a massive backlash in 2002 for handing over emails to the government that landed a pair of Chinese dissidents in jail on charges of “inciting subversion.”

These rules make a lot of Internet companies very uneasy because it’s difficult to entirely separate the data of Chinese users from the data of non-Chinese users, especially when both types of actors interact with each other inside of a network. What if a Chinese person sends a message to an American and then the American responds? American Facebook users wouldn’t appreciate the Chinese government being able to access their private communications, just like people all over the world began second-guessing the use of American technology products after the revelations of mass electronic surveillance by the National Security Agency leaker Edward Snowden.

“There’s no way around it. If you have data on a Chinese server, you’re facing a big risk,” Goldkorn says. “You either keep the data off the Chinese server or you make your service such that the international version and the Chinese version have some kind of firewall between them. It’s a lot more difficult, and, in terms of social networking, it also possibly means that the two sides can’t be truly networked.”

Protecting that data is likely more difficult than implementing censorship controls over content. Facebook maintains one of the most complicated and robust databases in the world. Building a specialized Chinese infrastructure that adequately addresses privacy concerns would not only be a costly endeavor; it would also create a service whose backend was considerably slower than the site’s functionality elsewhere in the world.

In an online environment where a 250-millisecond delay drives users away in droves, this slowdown could hamper Facebook’s ability to penetrate the Chinese market.

Besides, there’s no guarantee that Facebook would necessarily be a hit in China anyway.

Playing catchup

“When Zuckerberg started learning Mandarin four or five years ago, he really did believe that if he got into China quickly … [it would be] like every other country, where Facebook came in and dominated,” says David Kirkpatrick, Zuckerberg’s biographer. “I haven’t spoken to him about this, but I think I can project how he feels about it today. He still wants to get into China, he still believes it’s a big opportunity, but he’s not unrealistic enough to believe that it’s still possible for him to come in and and, in any short period of time, acquire a market position like he would have done a few years ago.”

During the six years Facebook has been shut out, China has developed its own thriving ecosystem of social networking platforms.

Emily Parker—formerly a member of Secretary of State Hillary Clinton’s policy planning team and the author of Now I Know Who My Comrades Are, a book about the efforts of online political dissidents around the world—says people use technologies like virtual private networks (VPNs) to get around China’s censorship regime.

“China has recently cracked down on VPNs. But in observing the Chinese Internet over many years, I’ve found that people who want to jump over the Great Firewall will generally find a way to do it,” she wrote in an email to the Kernel. “Some people will decide, however, that circumventing censorship is too much of a hassle. China has developed its own domestic social networking culture, and that’s an important part of this story.”

What does Facebook offer that Qzone and WeChat don’t? Over 1.4 billion international users.

According to figures compiled by Statista, of the 12 most popular social networks in the world, eight are based in the United States. Four of them—WhatsApp, Instagram, Messenger, and Facebook itself—are owned by Zuckerberg’s company. The other four are Chinese creations thriving without competition like Facebook or Twitter. QQ and WeChat are messaging platforms like WhatsApp or Facebook Messenger. Qzone is essentially a social-networking Facebook clone, and Baidu Tieba is a blogging platform.

If Facebook were to come into the country, becoming the dominant player wouldn’t be easy—although Facebook has managed to completely absorb the business of local players elsewhere in the world.

The biggest social network in the Netherlands used to be a platform called Hyves. Between its birth in 2006 and 2010, Hyves racked up 10 million users, an impressive two-thirds adoption rate within the Netherlands. The following year, that number of Hyves users dropped by 38 percent as Facebook use in the country skyrocketed by 45 percent. Facebook has offered a service in Dutch since 2009, but it took a couple years before it really caught on in the country, and then a couple years more before killing off Hyves entirely.

The explanation here is that Facebook was able to give Dutch users something they couldn’t get elsewhere—a way to connect to their friends in other countries. Hyves was primarily used by the Dutch, whereas Facebook is a truly global phenomenon.

What does Facebook offer that Qzone and WeChat don’t? Over 1.4 billion international users. Like the Dutch who flocked to Facebook, for Chinese people looking to connect with their friends and family members around the world, the big blue social network is the easiest way to connect. Yet, that international bent is precisely what makes its integration into China’s regulatory framework so tricky.

In the meantime, Facebook has found a way to make money from China without having to deal with any of the headaches that come with operating its network within the country. From its office in Hong Kong, Facebook has been selling advertising to Chinese companies looking to grow their brands outside of the mainland.

The Wall Street Journal reports Shanghai-based video game studio Yonzu Interactive Co. spent $1.6 million advertising its online game League of Angels on the network. While the company doesn’t break down its revenue by country, Facebook made $531 million from the Asia-Pacific region during the fourth quarter of last year alone—67 percent growth from a year earlier, and that’s in part buoyed by China sales.

The arrangement plays to the strengths that Facebook has over its potential Chinese competitors, while avoiding many of the downsides that would come with actually going into China. But it’s hardly the best of both worlds.

There have been a string of rumors over the years about Facebook going into China. There was talk about a partnership with “Google of China” Baidu in 2011, China allowing Facebook access in certain “free trade zones” in 2013, and reports of the opening a Beijing office last year. Yet none of those rumors ever panned out. While reading Zuckerberg’s tea leaves is difficult, it’s possible the next rumor about going into China may turn out to be true.

Illustration by Tiffany Pai