Should We Care If A Chinese Sovereign Wealth Fund Invests In Facebook?

• Posted by bbishop
• on July 4th, 2011

Last week Business Insider reported a rumor that one of China’s sovereign wealth funds (SWF) was interested in acquiring a $1.2B stake in Facebook. At Facebook’s current valuation of $70B, a $1.2B investment would buy about 1.7% of the company.

UPDATE: At least one of China’s SWFs has said it is not interested in a Facebook investment-China Sovereign Wealth Fund CIC Has No Plans to Invest in “Overvalued” Facebook. END UPDATE

This report caused more of a stir than it merited. Such a tiny stake, apparently to be acquired on the secondary market, would not buy any rights or influence over Facebook’s corporate governance. Nor would a small ownership position by a Chinese SWF necessarily help Facebook’s rumored expansion into China through a partnership with Baidu (Facedoo?). Chinese SWFs have limited to no influence on China’s domestic Internet regulations. (For more on Facebook’s prospects in China, see my previous posts.)

Gordon Chang contributed to the discussion via a fear-mongering blog post with a misleading headline (Mr. Chang confirmed via email that he, not Forbes editors, wrote the headline). In China Wants to Buy Facebook Mr Chang asserts that:

China’s sovereign wealth fund, which is no more independent of the Communist Party than the Beijing municipal government, wants to buy a stake in the world’s most prominent social networking site because Chinese leaders want to control social media.  And they hope to do that as part of their comprehensive campaign to dominate the conversation about China—not just inside the country but around the world as well.

Beijing, during the last decade, announced initiatives to change discourse on foreign university campuses with its Confucius Institutes—now 322 of them—and Confucius Classrooms in elementary and high schools—369 of those.  Moreover, its “go global” initiative is trying to affect news coverage of China by opening bureaus outside the country to internationalize state media, especially Xinhua News Agency, China Central Television, and People’s Daily. [For a discussion of the Confucius Institute hysteria see China's Soft Power Meets The Daily Show And Stupidity In California | Sinocism.]

And this is where the Facebook founder is giving Beijing an opening.  Zuckerberg visited China in December and is scheduled to return, perhaps in September, in his bid to access the world’s largest online community, 457 million at last count.

“One big reason American firms stumble in China is that the government tends to favor locals when it comes to regulation,” Business Insider points out.  “One way to make sure that doesn’t happen is to allow the government to own a stake.”

Beijing wants to own stakes in foreign firms because it is trying to control them.  Its ambitions may at the moment look unrealistic to us, but that does not mean swaggering—and strategic-thinking—Communist Party officials do not hold them.

So there you have it. Any Facebook investment by a Chinese SWF is part of an overarching Chinese plot to take over the global Internet. Except that China, as evidenced by a recent essay in a Communist Party newspaper (Researchers: Alibaba-Yahoo Fight Highlights Threat to China Internet Control – WSJ), seems to be worried that it can not even control its own Internet.

I say let a Chinese SWF buy a small stake. The fund would provide liquidity to US shareholders and possibly be buying near the top. And a Chinese stake in Facebook might also give the US some leverage if things ever do go sideways and the Chinese government starts expropriating and/or forcing liquidations of foreign investments in Chinese Internet firms.

You can follow me @Bill on Stocktwits, @Niubi on Twitter and @Billbishop on Sina Weibo.

 

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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