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MIZUHO: Here's why Facebook has 'a realistic opportunity' to enter China in 2018

Alex Heath
Mark Zuckerberg China

Facebook has a "realistic opportunity" to enter China in 2018, Mizuho analyst James Lee wrote in a note to clients on Tuesday.

Lee came to the conclusion after meeting "various industry contacts" in China during a recent trip. He outlined a few factors that he believes increase the likelihood of Facebook finally entering the country next year:

  • Facebook's recent appointment of an executive to manage relations with China will help the company "understand the regulatory requirement and negotiate Facebook's operating structure in China," said Lee in the note, a copy of which was obtained by Business Insider. Facebook recently tapped William Shuai from LinkedIn to lead government relations in the country, according to The Wall Street Journal.
  • Facebook's current approach of helping Chinese advertisers sell ads overseas "appears to

    be aligned with Chinese government's policy to globalize local companies," and could finally lead to the company securing the coveted Internet Content Provider (ICP) licence needed to officially do business in China. Lee estimated that Facebook already makes more than $US1 billion per year from Chinese marketers that use its platform to advertise outside of China.

  • The recent approval that Airbnb and Linkedin received to operate in China is a sign that the government is "more open to internet companies that can help Chinese companies gain global recognition," according to Lee.
  • Chinese President Xi Jinping will begin his second term in November 2017. "Historically speaking, media scrutiny and sensitivity are much less during an administration's second term," said Lee, who noted that Google was able to successfully negotiate its ICP licence during the previous president's second term.

Facebook has been officially banned from doing business in China since 2009, and parts of its WhatsApp service were recently blocked within the country's borders. CEO Mark Zuckerberg has courted Chinese officials for years, and even spent one year learning to speak Mandarin.

When Facebook eventually does crack into China, Mizuho's Lee thinks the social network will first likely operate an Instagram-like app or gaming platform for Oculus VR in the country. The New York Times recently reported that Facebook has been covertly testing a photo-sharing app in China and is also on the hunt to find a Shanghai office for its fledgling consumer hardware division, Building 8.

China, the world's largest market of internet users, is an attractive but challenging region for American tech companies to break into. Google famously shut down its Chinese search engine in 2010, blaming the country's strict censorship rules and hacking attacks it had suffered in the region.

One way Facebook has experimented with getting back into China is by creating a censorship tool that automatically suppresses certain posts in specific geographic areas, The New York Times reported last year. Facebook has never confirmed the existence of the tool.