Bottom line: Facebook and Google’s latest micro-moves into China reflect their longer term efforts to get permission to launch major services in the market, though it’s unclear if they will get such a green-light anytime soon.
You have to give China-challenged Internet giants Facebook (Nasdaq: FB) and Google (Nasdaq: GOOG) an “e” for effort. Both companies have popped into the China headlines over the last two weeks for micro-moves into the world’s largest Internet market, including the latest news that Facebook plans to set up a company in Hangzhou that will become an “innovation hub”.
The Facebook news comes just about a week after Google confirmed that it has launched a new artificial intelligence (AI) game in China on a platform operated by local Internet giant Tencent (HKEx: 700). Both of these moves are miniscule in the big scheme of things, especially for companies of Google’s and Facebook’s size. But they do reflect the kind of baby steps, some might also say groveling, that such corporate giants will need to take to get a hold in the world’s largest Internet market where they are now mostly denied permission to operate.
Let’s jump right into things with the reports that Facebook officially registered a company called Facebook Technology (Hang Zhou) Ltd. in China earlier this month. (English article) The subsidiary was approved on July 18, according to a filing with the National Enterprise Credit Information Publicity System. The new company has registered capital of $30 million, which is a relatively large and means that Facebook is clearly doing something in the city that also happens to be headquarters of local Internet giant Alibaba (NYSE BABA).
Beyond the registration, Facebook itself has actually taken the time to issue its own brief statement explaining the move, clearly wanting to make sure that nobody gets the wrong idea. The statement explains this is an “innovation center”, and that the company has already set up similar facilities in countries including Brazil, India and France. It adds the center would be focused on helping developers and entrepreneurs to innovate and grow.
Anyone who lives in China would know that words like “entrepreneur” and “innovate” are key buzzwords on Beijing’s agenda, and appear in government campaigns and the closely affiliated state-run media on a daily basis. Thus one could argue that Facebook is clearly playing to the government agenda as it lobbies Beijing to let it open a Chinese version of its site for local Internet users. Google has also been playing to a government agenda with its own recent moves, again in a similar campaign to persuade Beijing to let it open a China version of its Google Play app store.
Playing With AI
That’s a nice lead-in to the Google news from about a week ago, which saw the company launch a version of a game called “Guess My Sketch” on Tencent’s wildly popular WeChat instant messaging platform, which boasts more than 1 billion users in China, myself included. (English article) Like Facebook, Google was more than happy to put out a statement explaining its move, noting quite prominently that the game, which lets readers sketch an object and then challenges the computer to guess what it is, was powered by AI.
Again, anyone living in China would know that AI has become another one of Beijing’s top priorities, and appears in government campaigns and state-run media on a daily basis. Google is no fool in that regard, and played straight into Beijing’s campaign with its formal opening of an AI lab in Beijing last year. (previous post)
Google has also played into the campaign by hosting two high-profile tournaments featuring its AlphaGo computer challenging world champions at the ancient Chinese board game of Go. The computer has won in nearly all of those matches, again driving home Beijing’s message that AI is the wave of the future, even when it comes to an ancient culture like China’s.
Readers may detect an element of cynicism in my writing, and I’ll be the first to admit that I find this kind of effort a bit like groveling. But that said, it’s also part of doing business in China, especially in sensitive areas like the Internet, where government relations are far more important than comparable industries in the west.
As to whether any of these moves will ever bear fruit, that’s another question completely. Beijing clearly appears to be enjoying this kind of groveling, since it provides plenty of PR to show how important these companies think China is. But there’s also clearly still a sensitivity element, since Facebook’s registration for its new Hangzhou company apparently got removed from the Internet shortly after its discovery by the media.