Facebook, Trying to Move Forward in China, Registers a Chinese Subsidiary

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After a decade of effort in which Facebook’s progress at courting China often seemed to stall, the social network finally gained an official status in the country — at least temporarily.

Facebook has registered a subsidiary in the city of Hangzhou, according to a Chinese government filing, which said the company had gotten approval last Wednesday. The subsidiary was financed with an investment of $30 million, according to the records.

Yet late Tuesday, in a sign of possible complications, the corporate registration was taken down from the Chinese government website, and some references to the new subsidiary appeared to be censored on social media in the country.

The moves indicated how complicated it remains for Facebook to navigate China, where it has been blocked for almost 10 years. If the subsidiary is allowed to proceed, it will be a toe in the water here for the Silicon Valley company. Facebook said it wanted to use the subsidiary to coordinate with Chinese developers in the closely censored market.

Even to release an app in China, Facebook is likely to need a separate license from regulators. To go further and introduce one of its larger products, like its social network or messaging service, would require further negotiations over issues like data storage and security. Facebook’s photo-sharing service, Instagram, and its messaging platform, WhatsApp, are also blocked in China.

“We are interested in setting up an innovation hub in Zhejiang to support Chinese developers, innovators and start-ups,” said Debbie Frost, a Facebook spokeswoman, referring to the province in eastern China where Hangzhou is. “We have done this in several parts of the world — France, Brazil, India, Korea — and our efforts would be focused on training and workshops that help these developers and entrepreneurs to innovate and grow.”

The ruling Chinese Communist Party deems all social networks that it does not ultimately control, like Facebook and Twitter, as potentially destabilizing. A series of sophisticated internet filters block residents from gaining access to such sites. Networks within China often self-censor, but are still held closely accountable by government regulators.

To get around those fears, some American companies, like LinkedIn, have voluntarily censored their products.

If Facebook started introducing services in China, it would probably face questions about whether to censor content or share data with Beijing. The latter could be a particularly tricky issue for the social network while it is under scrutiny by the United States government for its handling of user data.

Facebook’s chief executive, Mark Zuckerberg, said in an interview last week with Recode’s Kara Swisher that the company was “a long time away from doing anything” in China. He said Facebook was working on products for China “over the long term,” but added: “We need to figure out a solution that is in line with our principles and what we want to do, and in line with the laws there, or else it’s not going to happen. Right now, there isn’t an intersection.”

Facebook’s fortunes in China follow some progress here for Google, which has also seen its products slowly squeezed out of the market. Over the past year, the search giant has set up an artificial-intelligence research lab in China and introduced several services, including an A.I.-powered sketching game.

To court China, Mr. Zuckerberg previously pulled out all the stops, dining with China’s president, hosting a question-and-answer session in Mandarin at a Chinese university and even once jogging across a smog-choked Tiananmen Square. The company also quietly worked on a censorship tool and released a photo-sharing app in China, called Colorful Balloons, without putting its name to the service.

Despite not having any product or office in China, Facebook still does booming business here. The company sells ads across the world to Chinese companies and the Chinese government. Facebook’s ads are so in demand that China has been the company’s largest source of ad revenue in Asia.

The legal representative for Facebook’s new China subsidiary was the same employee who registered the company that launched Colorful Balloons: Ivy Zhang, Facebook’s chief representative and head of business development in China.

Also on the board of the new subsidiary with Ms. Zhang is William Shuai, Facebook’s China government affairs representative and a former government relations executive at the Chinese search engine Baidu and LinkedIn. Before holding those positions, Mr. Shuai was briefly a low-level official in the Chinese government.

By Paul Mozur and Sheera Frenkel
NY Times

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