The brainchild of billionaire Mark Zuckerberg, Facebook, which has since rebranded to Meta, has never been approved by the Chinese authorities despite the company’s best efforts to court officials.
But as the company attempts to move away from social media and data collection, pouring billions of dollars into the development of the “Metaverse,” a sort of virtual reality multiplayer online video game that attempts to moonlight as a social media site, acceptance and adoption rates are floundering.
As investors seek returns following a 2022 that saw Meta wipe out hundreds of billions of dollars in valuation, falling from a high of $343 in January to a low of $88 by November, Zuckerberg once again must knock on China’s steel gates in an effort to sell his Quest headset.
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This is the synopsis of a July 3 article in The Wall Street Journal, which cites a “person familiar with the matter” to state that Meta’s CEO faces exactly this dilemma after being asked “on a video call” why rival Apple can sell its new VR headset in the motherland and Elon Musk and his Tesla are even formally received by Xi Jinping’s Chinese government.
The anonymized sources tell the Journal that Zuckerberg and Meta are not “seen as friendly” to China. In a number of meetings with the country’s large enterprises, which all either directly or indirectly report to the Chinese Communist Party, the efforts have “made progress” with just one: Tencent Holdings.
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“Prospective partners in talks with Meta have also discussed concerns internally about how Meta might react to possible future restrictions on VR content,” the Journal said, adding that its sources told authors that the segment is one the Xi administration “plans to regulate.”
This is the climate Chinese companies operate in. In July 2022, the government hit Alibaba and Tencent with fines for violating “anti-monopoly” rules.
Although the fines were small to an abnormal degree: 500,000 yuan (US$74,500 at the time), the discipline hit shareholders hard as it sent stock price spiraling as much as 6.8 percent, taking the Hang Seng Index 3 percent lower with them.
Penalties were part of an overall crackdown as something of a branch of Xi’s anti-corruption campaign.
Vision Times reported in November of 2021 that after the government hit Alibaba with a record US$2.8 billion fine, amounting to 4 percent of its 2019 sales, the company’s market valuation continued to plummet some $400 billion as new regulations were enforced.
Discipline came just months after founder and billionaire Jack Ma suddenly disappeared in February, shortly after China’s financial regulator put the quash on the launch of the initial public offering of Ma’s Ant Group.
Tencent is rather core both to the Chinese Communist Party’s social credit system as the developer and maintainer of the WeChat “everything app” and the government’s soft power on account of being a major investor or outright owner in several western companies, such as social marketing and influencing website Reddit, and Riot Games.
The Wall Street Journal also posits that for Zuckerberg and Meta, getting closer to China may be seen as at odds with a recent batch of global foreign policy from G7 countries that focuses on “de-risking” but not “decoupling” from China.
Examples of this abound from America’s blue chip corporations in recent months, such as Apple exporting more of its production from the Mainland to India, and chipmaker Qualcomm who will produce specialized 5G components for Apple in Colorado instead of at its Chinese facility.
Despite the apparent obstacles, the Journal’s sources were paraphrased as saying that “Tencent executives heatedly debated whether to join with Meta as they discussed strategies late last year,” and that Chairman Pony Ma “decided to proceed with the negotiation first and see what deals they could reach.”
While Tencent considers offering its own digital products via the Quest headset, concerns for Mainland companies are how to handle content censorship and recent rules around sending data outside of China.
It would appear that the initiative is already an uphill battle.
On July 5, CNBC reported that state messaging outlet Beijing Daily pushed a “harsh critique” of Zuckerberg via its WeChat account.
The CCP often uses its media outlets to informally announce policy changes to the public and business sector.
CNBC noted that Zuckerberg told U.S. congress in 2020, “I think it’s well documented that the Chinese government steals technology from American companies.”
The outlet paraphrased the article, issued in Mandarin, as having “said that Zuckerberg’s past criticisms of Chinese companies, including ByteDance’s TikTok, essentially amount to self-sabotage of his efforts to sell in China.”
The CEO’s of Apple and Google, which have business organs inside of China beyond relying on the country’s manufacturing capacity, declined to state things in such overt terms during the same testimony, CNBC added.
If Tencent were to take the contract — and have Xi’s blessing — the company “would gain a new source of revenue and an opportunity to leverage off the VR hardware business,” the Journal said.
“Some of its in-house teams and studios it has invested in have been developing VR games, but it hasn’t had a device for playing them,” authors added.
Tencent would also be able to use the product to compete against ByteDance’s Pico headset, which WSJ says collected 43 percent of the Chinese market’s shipments for VR headgear.
But meanwhile, Sony already has its Playstation VR headgear deployed in mainland China, while Apple and its US$3,499 Vision Pro offering — are widely considered to be a sure bet to launch in China in the future, although only a U.S. release has been announced.
The Chinese government appears to not be a fan of the video game epidemic impacting youth, a factor which may also be leveraged to impede Meta’s regulatory approval in the Mainland.
In August 2021, Beijing announced that minors under the age of 18 would be limited to only three hours of gaming per week in an ostensible effort to counter the “lying flat” movement at the time, which involved young people protesting against the state of society by simply not working, going to school, or pursuing social lives.
