Confusion reigns in China as Facebook is/isn’t granted access

For a brief moment in time, Facebook thought it had access to the fortunes of China. But now execs are heading back to the drawing board as its subsidiary’s registration has been removed.

After a decade of struggling to make any headway, there was a win. A company was registered in the city of Hangzhou according to a government filing, financed with an investment of $30 million and Facebook listed as the only shareholder. Unfortunately for Facebook, this registration was removed late Tuesday night, perhaps indicating the social media giant is back to square one.

The company registration should be viewed as nothing more than a minor win for Facebook. This was not permission for a fully-fledged launch in China, but it was a presence in the country. Facebook has confirmed it planned to create an innovation hub, similar to those which it has created in countries such as Brazil, to tap into the local market. But, it was a foot through the door, if only for the briefest of moments.

This licence would have allowed Facebook to access Chinese developers and consumers, though the launch of an app would have required more negotiations. Should Facebook have wanted to launch its full service, this would have been even more complicated. But this minor win meant CEO Mark Zuckerberg and his cronies were inside the tent, rubbing shoulders with the right people. The removal puts the social media giant back outside, crossing its legs.

Why the registration has been removed is anyone’s guess, but it does show the complications of trying to access one of the world’s most sought after prizes. To do business in China, you do it on its terms with no back chat. This might be a difficult pill to swallow for Silicon Valley companies which are used to calling the shots, but China has shown over the last decade how stubborn and resourceful it can be.

With the world’s largest population, a young and increasingly affluent middle-class and a hunger for the digital world, the Chinese population looks prime for the US giants of the internet economy. But with the likes of Google, Facebook and Twitter being banned, the profits have instead gone to domestic brands. China has not bowed to the global infatuation with these companies, instead, used its promising society to fuel the growth of brands such as WeChat, Alibaba and Baidu. The Great Firewall of China has certainly brought riches for those who are lucky enough to be on the right side of it.

Zuckerberg and other Facebook executives have been trying to crack this enigma for years, but it seems they are not willing to accept the required concessions. A social media platform not under the direct influence of the government is not a position China wants to find itself in. It would be potentially empowering and destabilizing, a path the government does not want to walk. Some companies have accepted these conditions, LinkedIn is one example, though the majority have drawn a line in the sand.

It should be noted Facebook does do business in China. It sells advertising to Chinese brands looking to capitalise on the vast reach offered by the platform, but for Facebook to continue the exceptional growth investors have become accustomed to over the years, it needs access to the consumers as well. Expanding the user base is critical for the social media giant, and there have been signs in recent months it might be hitting a glass ceiling.

In the Western markets, some might argue there is limited room for additional users, while younger generations are starting to snub the platform in favour of brands such as SnapChat. The business can grow in some developing markets, though these are not the consumers which are deemed attractive to advertisers. To maintain profitability without the growing user base, Facebook would have to serve more ads to the user. This would be a downward spiral. As mentioned before, China has a growing, young, affluent, digital-savvy middle class. This is an audience advertisers would be interested in engaging.

The subsidiary’s registration was not going to ensure Facebook could launch its services in the country in the short-term, but it was certainly a step in the right direction. Despite the fact it has been seemingly revoked, it is still progress.