To start, I am going to copy this section of Axios’ excellent China newsletter from March 8, 2019, written by Bill Bishop. It is short, please give it a read:

Facebook CEO Mark Zuckerberg may have signaled in his recent Privacy-Focused Vision for Social Networking post that Facebook has given up on plans to operate its services inside China.

Driving the news: Zuckerberg’s comments suggest it may be impossible for Facebook to launch inside China in compliance with PRC law. In his note published Wednesday, he says…

“As we build our infrastructure around the world, we’ve chosen not to build data centers in countries that have a track record of violating human rights like privacy or freedom of expression.”

“If we build data centers and store sensitive data in these countries, rather than just caching non-sensitive data, it could make it easier for those governments to take people’s information.”

BuzzFeed later reported that:

“Facebook does not see any path forward in China, a senior source inside the company told BuzzFeed News on Wednesday…

The source told BuzzFeed News that many employees felt it was critical for Facebook’s mission to enter China, and that it’s one of the most frequent questions asked during employee Q&A sessions. This person also noted that many people internally will likely be unhappy with Zuckerberg’s hard line on data storage.

But, but, but: Facebook already does have a massive business selling ads on its platform to Chinese-based entities looking to reach out into the global internet, perhaps as high as $5 billion in 2018, according to this NYT report last month.

What tech titans in Silicon Valley have in business and technology expertise, they often lack in cultural and political understanding of the countries they seek to operate in (that includes the US). The Chinese government views any and all entities within China as tools of the state, to be used to further the interests of the Chinese government. It always comes down fundamentally to the question of legitimacy, viewed through the prism of continued economic growth and national pride.

As such, the Chinese government will always bend foreign companies to their will. They understand the potential of their market due to the sheer size of the population and the economic growth they have experienced, and that foreign companies are willing to sacrifice a lot of their long-term interests for short-term gain in the Chinese market. The moment that the Chinese government and their associated state-run or state-invested companies acquire the knowledge necessary to obviate their foreign partners, those partners will be crushed.

Other tech companies would be wise to steer clear as Facebook has. There is simply no compromising when it comes to the issue of people’s information, as the Chinese government will show absolutely no compunction in using this data to oppress anyone they deem undesirable. Moreover, from a business perspective, tech companies that are founded on code are particularly vulnerable, as stealing and repurposing code is far easier than physically breaking in and stealing components as would be necessary in other industries.

I have more to say, and I seek to follow up on this topic sooner (instead of another 2 year break!).