China has literally cordoned off access to its country for companies outside and in the latest news, Facebook Inc. had acquired permission to set up a subsidiary venture in the eastern province of Zhejiang. New York Times now reports that this is no longer happening based on a source that is familiar with this situation.
The database of the Chinese government reflected that Facebook had the necessary permission to set up a subsidiary, but Reuters reports that it has checked now and that approval does not exist anymore. This is yet another setback for the social media giant, that has been trying to enter the Chinese market for the longest time now. China has the largest official population in the world and both Facebook and its messaging app WhatsApp are blocked in the country.
Matt Sheehan, an expert on China-California relations and fellow at The Paulson Institute think tank, talks about how difficult it is for a US company to wade through the government bureaucracy that is almost non receptive of organisations outside the country. He says, “Terms like ‘The Great Firewall’” often gives outsiders the impression that the Chinese government is totally united on technology policy. In reality, within that Firewall are lots of competing fiefdoms and ongoing turf wars.”
China and the US have seen tensions grow between the two countries as with economic sanctions being imposed on imports from both countries. This is set to get worse as the US plans tougher foreign investment restrictions which are directed towards China. And other US based companies like Qualcomm has seen problems with the Chinese regulators in its deal to buy NXP Semiconductors NV. Qualcomm is even considering calling off the deal now.
Facebook’s plan to create an “innovation hub” that will support local startups and developers was planned for the province of Zhejiang. Facebook has not replied back to Reuters’ request for a comment on the matter.
New York Times reports that the decision to revoke the permission was due to a disagreement between the officials in Zhejiang and the Cyberspace Administration of China which is the national internet regulator. Cyberspace Administration of China was apparently dissatisfied with the fact that it was not consulted with more closely in the matter. But according to experts, this is an internal matter of the Chinese government and should not alarm the US firms looking for an opportunity in China.
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Facebook’s shares fell by almost 24 percent in after-hours trading, as a result of the company reporting that the growth of revenue has been slowing down. This comes at a time when the company is facing extensive investments in the security of the social media platform.