Facebook and the Timing of Entering China

Mark Zuckerberg meets Lu Wei with a copy of Xi Jinping’s book on his desk. (Photo: China Network)

Facebook founder and CEO Mark Zuckerberg recently had a jovial meeting with China’s Internet Czar Lu Wei, where Zuckerberg claimed he bought Xi Jinping’s biography for colleagues so they could “understand Socialism with Chinese Characteristics.”

The meeting, which many have deemed “kowtowing,” appeared to be another signal that Facebook is making a play toward China after being blocked in the country since 2009. This comes on the heels of Zuckerberg’s China visit in October and the company setting up a Beijing sales office in May. Chinese state media has even started taking a Facebook entry seriously, suggesting that if it wants to come in, it will probably have to find a domestic partner.

Under Xi Jinping, there’s been an intense crackdown on pretty much every sector of society—media, education, NGOs, etc.—with the Internet being foremost among them. So if China is seriously considering letting Facebook enter, why now?

One important thing to understand is that sites like Facebook, Twitter and YouTube have been blocked not only to censor their political content, but also as a means of boosting local Chinese counterparts. This has clearly worked, allowing social media industry jobs to remain in China while making sure that the most popular networks are the ones most easily controlled by Communist Party authorities.

In the past half-decade since the big foreign sites were blocked there’s been a golden age in Chinese Internet development. Weibo and WeChat, China’s two largest social networks, have seen their user bases grow from nothing to hundreds of millions, making them the clear social media winners. So if an outside contender is allowed to enter now, few, if any, Chinese users would adopt it as their social network of choice. It would simply be something to use on the side if they want to connect with people internationally. Thus, there’s little commercial threat in letting an outside player like Facebook re-enter at this stage.

On the contrary, there are some compelling reasons for the Chinese government to allow Facebook in. One is financial. If, as state media is starting to suggest, entry would require partnership with a local counterpart, it could be a shot in the arm for a struggling domestic network like Renren. Since Facebook no longer has any hope at achieving Internet supremacy in China, its entry represents little more than creating jobs that otherwise wouldn’t exist. It could also be an opportunity for a local Chinese company to collect foreign technology and techniques.

But perhaps an even more compelling reason is image. If Facebook entered China, it would be a PR coup for the CCP. Chinese leaders and media could point to the unblocking both domestically and internationally as proof that its internet is opening. Of course, it would be nonsense. If Facebook were to enter, it would have to be on Beijing’s terms, which would entail the same rigorous self-censorship and oversight by authorities that domestic Chinese sites are subject to. It could even require turning over user information. But Zuckerberg’s “kowtowing” to the very man in charge of this apparatus suggests this is something Facebook is entertaining. The question is: is it worth it?

From a moral perspective, it would immediately open Facebook to condemnation around the world for compromising on freedom of expression. The company could take the optimistic stance that Google once did, saying that being in China under restrictions would still have a more positive impact than not being there at all. But this wouldn’t likely appease human rights activists. The company could even get dragged before congress in the U.S. to answer for its moral compromise, much like Yahoo was in 2007.

From a financial perspective, it’s a bit murkier. If Facebook thinks it’s going to join the ranks of Weibo and WeChat as a major social media player in China, it’s in for some severe disappointment. But in a country with an internet population of 650 million and rapidly growing, even carving out a small niche could make the decision to enter viable. But again, the question for the man already worth $30 billion, is it worth it?

Check out the EO Podcast

Over the past several weeks updates to this blog have been regrettably sparse. I’ve been laying the groundwork for two long-term projects (both China related) and have unfortunately only had time to juggle so much. But I can now happily announce one of those projects.

From now on I’ll be hosting a regular podcast at Economic Observer where I chat with people doing interesting work in China.

It will be a bit different than the content on this blog. In keeping with EO’s general content, most guests will be business-related; from execs at multinational corporations down to mom and pop startups (whom I find equally interesting).  But I’ll certainly have occasional politically and socially-oriented guests. For instance, I’ve already recorded an episode with Daniel Bell, where I ask what was up with those recent op-eds in NYT and CSM.

The premise will usually be to explore how these people ended up in China and how they’ve tried to navigate China’s consistently inconsistent market. But it’s also meant to look at the wider industries/fields that the guests are part of; altogether lasting about 15-20 minutes.

In the first episode I speak with an internet security consultant turned Beijing’s first microbrewer. We talk about the countless roadblocks involved with setting up shop, whether the dream is dead for young people trying to do business in China’s increasingly foreigner-unfriendly market, and finally discuss China’s wider alcohol industry. That episode and all future ones can be downloaded here.

Some of the other tentative guests I’ve lined up are a green urban planner, a film director who’s done a US-China co-production, the man who oversaw the NBA’s expansion in China from 2003-2008 and is now trying to bring Ultimate Fighting Championship (UFC) to the country, and a guy who started a magazine, a guitar shop and plays in a Beijing Beatles cover band on the side.

As you might imagine, I’m not an expert in any of these fields. I don’t intend to make podcasts that are figure-heavy or full of content that would only interest businessmen. I’ll try to make them smart, but accessible and story-oriented.

As I mentioned, I’m also in the early stages of another big China project, but I’m a LONG ways away from announcing that one. As far as this blog goes, I’d love to pretend like the frequency of updates won’t be affected, but it already has been. This is a one man operation, so I hope you’ll understand if there’s a slightly less steady stream of updates for a while.

Anyways, thanks for reading (and hopefully listening). Now back to your regular sociopolitical speculation…

What Americans won’t acknowledge about their manufacturing jobs

Last week the US senate passed a bill aimed at punishing China for currency manipulation with tariffs, which is stupid for a number of reasons, but I want to talk about the underlying narrative that springs up every election cycle in Washington: Those cheating abusive Chinese commies are stealing our hard-earned American jobs!

Dozens of congressional candidates ran ads to this end in 2010. Perhaps the most articulate was this one for Ohio Congressman Zack Space, where it shows a crowd of a dozen Chinese people and says, “Gibbs (his opponent) wants more free trade with China to increase their standard of living.”

Then it cuts to a lone white man and says, “…but what about Ohio?”

It perfectly captured the attitude many Americans, and ergo the politicians that depend on their votes, have that they’re entitled to these jobs as Americans. Protectionist bills like what the senate just passed enjoy wide populist support because we need to protect American jobs for Americans damn it! Well let’s look at one simple statistic:

Average manufacturing job hourly wage

USA: $22.30

China: $3.10

(Source: Time Magazine)

On average you can hire seven Chinese workers for the price of one American. I’m a proud American, but if one of us loses a job to seven Chinese, I don’t see much problem with that; especially when you consider a few other things.

Things aren't so hot for white collar Americans either

That average Chinese worker making $3.10 an hour probably didn’t just waltz over to the local car factory. Odds are she left her entire family behind to work in a distant manufacturing hub like Dongguan or Wenzhou where she lives in a dorm and sends the bulk of her paycheck back home to support her child and parents, whom she’ll be lucky to see once a year.

She might work 10-12 hours each day, maybe taking only one day off per month. Say what you will about human rights, but this is usually by choice. If she’s already this far away from home, there’s no sense wasting time. She wants to work as much as possible. So she’s happy to ignore overtime regulations if it results in more hours. And she’s very grateful for this job. It gives her far better prospects than she’d have back home.

(Read: Factory Girls by Leslie Chang. An excellent chronicle of the lives of Chinese factory workers)

This doesn’t just apply to factory workers. Ask a random waitress or cleaning lady in a big city like Beijing. Chances are they’re not from Beijing and they have a similar situation to the factory worker.  How many laid-off Ohio workers do you imagine would be willing to leave their family behind and move to Florida to live in a dorm and work at a waitressing job?

You can point to abusive working conditions, defective products or intellectual property theft. These things certainly exist, but they’re more a shameless excuse for protectionism than they are a significant detriment to America’s economy. They’re no justification for boxing out all Chinese manufacturers. And yes, China manipulates its currency, but it has appreciated 20% since 2005. And no matter how much it appreciates, it won’t even out the mammoth manufacturing cost imbalance.

In the latest Republican debate Honeywell CEO David Cote pointed out that, “Twenty years ago there were a billion people actively participating in the global economy.  Today there are more than four billion active participants in the global economy, with China, India, former CIS states and other emerging economies now in the game. While that is a good and peaceful phenomenon, it also means we need to compete more strongly than we did in the past.”

People like Mitt Romney are pushing the American victim of red China narrative because it’s what Americans want to hear. Telling them the truth would be political suicide; that their previous lifestyles were superficially inflated and that they need to brace for permanent sacrifice and dramatically lower their living expectations.

There are plenty of things the US government can do to make the country more competitive in education and clean energy that don’t need to resort to protectionism, but ultimately it’s on Americans to accept the tough reality of having to sacrifice more for less money. The global playing field is balancing out. For emerging economies like China’s, that means an upswing in quality of life. Unfortunately for the US, it means a fall down to the world mean. When viewed objectively, that’s not a bad thing.