Facebook whistleblower undercuts Zuckerberg’s China defense against breaking up Big Tech

Grady McGregor here filling in for Clay Chandler.

In many parts of Asia, Facebook has become synonymous with the Internet itself.

So when Facebook and its family of apps went down for five-hours Monday, business owners in India that relied on WhatsApp for communications had to scramble to other platforms to provide essential services like keeping the lights on at hospitals, and Instagram live-streamers in the Philippines lost valuable nighttime selling hours, as Yvonne Lau, Biman Mukherji, and I reported yesterday.

The Facebook blackout didn’t hit China, of course, because Facebook has been banned in the mainland since 2009 for not complying with Chinese censorship rules. The ban, however, didn’t keep CEO Mark Zuckerberg from carving inroads with the Chinese government.

In 2014, he famously showed off a book he owned of Xi Jinping speeches to China’s former Internet czar Lu Wei at Facebook’s Silicon Valley campus. The next year, he gave a 20-minute lecture, in Chinese, to students at Beijing’s Tsinghua University extolling the virtues of Facebook as a platform to connect people around the world. At a White House dinner in 2015, Zuckerberg also reportedly offered Xi a chance to provide his soon-to-be-born daughter a Chinese name. Xi reportedly declined the offer. (Facebook denies that the incident occurred at all.) Then there was Zuckerberg’s gleeful ‘Smog Jog’ through Tiananmen Square in Beijing in 2016.

Zuckerberg’s attempts to cozy up to China were likely aimed at breaking into the market. Facebook reportedly spent years working on a never-released system—similar to Microsoft’s Chinese LinkedIn—that would provide mainland users with a censored version of the global platform and therefore comply with China’s strict Internet rules.

Even though there’s no Facebook in China, the company and the country have developed a mutually-beneficial relationship.

Facebook now generates $5 billion a year in revenue by selling ads to China-based vendors, according to industry analysts. In 2020, Bloomberg found that Facebook, via Instagram, let advertisers target 3.7 million users in Mainland China who use virtual private networks to jump the firewall and access the photo-sharing app. The Wire China also reports that Chinese government offices routinely place ads on the platform to target overseas audiences, and Chinese state media outlets are among the most popular accounts on the platform.

But in recent years, Zuckerberg has become increasingly hawkish towards China in public. He explained the change in a 2019 speech at Georgetown University. Facebook spent years attempting to enter the Chinese market, he said, but it never did because China’s censorship rules were ultimately incompatible with Facebook’s values.

“They never let us in,” he said in the speech. “Now we [at Facebook] have more freedom to speak out and stand up for the values we believe in.”

Zuckerberg adopted his anti-China rhetoric just as U.S. regulators ramped up scrutiny of what they say are Big Tech’s antitrust practices.

In July 2020, Zuckerberg, along with Amazon CEO Jeff Bezos, Google CEO Sundar Pichai, and Apple CEO Tim Cook, testified before Congress on antitrust matters. Each CEO argued that it was important to defend Big Tech—and not regulate it—to promote American tech values around the world. Zuckerberg cited China’s rising Internet power as a reason to not break up Facebook.

“We believe in values—democracy, competition, inclusion and free expression—that the American economy was built on… but there’s no guarantee our values will win out,” he said. “For example, China is building its own version of the Internet focused on very different ideas, and they are exporting their vision to other countries.”

Painting China as “an enemy more menacing than all of [the tech giants],” as Zuckerberg did, may have been an effective strategy since a more aggressive stance against China is one of the few issues that wins bipartisan support, as Wired wrote at the time.

But Congress’s displeasure with Facebook reached new heights on Tuesday when Facebook whistleblower Frances Haugen’s blockbuster testimony prompted lawmakers on both sides of the aisle to pledge further scrutiny of the company. Some, like Sen. Bernie Sanders (D–Vt.), renewed calls to break up the giant.

In addition to Haugen’s claims that Facebook knowingly prioritizes growth and profits over the health and safety of its users, Haugen’s testimony undercut Facebook’s claim that it acts as a sort of counterweight to China’s growing influence on the Internet; rather, she suggested that China is exploiting holes in Facebook’s security for its own gain. Haugen argued that Facebook understaffs a counterespionage team, which is overwhelmed by Chinese and other state actors who use the platform to track political opponents and spread disinformation. (Facebook did not immediately respond to a request for comment.)

“My team directly worked on tracking Chinese participation on the platform, surveilling, say, Uyghur populations, in places around the world. You could actually find the Chinese [actors], based on them doing these kinds of things,” she said.

Based on Haugen’s testimony, Sen. Richard Blumenthal (D–Conn.) said national security concerns may be the subject of the next hearing on Facebook, and at that point, Zuckerberg’s China defense may not carry much weight.

Grady McGregor
grady.mcgregor@fortune.com

This edition of Eastworld was curated and produced by Eamon Barrett. Reach him at eamon.barrett@fortune.com

Eastworld news

Joe and Xi

The White House says President Joe Biden and President Xi Jinping will meet for a virtual summit before the end of the year, marking the first official meeting between the two leaders since Biden’s inauguration in January. U.S. negotiators had requested an in-person meeting, but Xi has not left China for close to two years and, with the pandemic still raging worldwide, possibly won’t travel overseas until after Beijing hosts the Winter Olympics in February next year. Financial Times

After Duterte

Filipino strongman President Rodrigo Duterte announced he is retiring from politics on Monday, although experts suspect the demagogical figure—who led a brutal and bloody war on drugs after coming to power in 2016—will remain a key figure behind the scenes. The race to replace Duterte is now on. The winner, besides tackling domestic issues, will play a key role as a fulcrum between China and the U.S. Literal strongman, former boxer Manny Pacquiao, filed his candidacy on Oct. 1. On Tuesday, Ferdinand Marcos Jr, the son of the former Filipino dictator, announced his bid for presidency. On Thursday, current Vice President Leni Robredo entered the race, too. New York Times

Laborers leave lockdown

Tens of thousands of migrant workers have left industrial hubs in Vietnam after lockdown measures—in place for three months—were lifted on Oct. 1. The sudden exodus could strain manufacturing in the region. The Vietnam Textile and Apparel Association says the garment industry could endure a 37% shortfall in required staff for the rest of the year, as the government says up to 2.1 million migrant workers laboring in Vietnam’s industrial heartlands want to return home. Bloomberg

Miffed

The board of the IMF said Wednesday it needed to conduct more talks before deciding whether Kristalina Georgieva, the IMF head, artificially boosted China’s “Doing Business” rankings during her time at the World Bank. Complaints against Georgieva allege she pressured World Bank staff to change data to boost China’s ranking and avoid angering Beijing. Treasury Department officials in the U.S., which is the largest funder of the IMF, are debating whether to ask for Georgieva’s resignation over the scandal. The IMF board will reconvene on the issue Friday. Financial Times

MARKETS AND MOVERS

Kuaishou — Shares in TikTok rival Kuaishou are down 80% from their peak in February, which the short video app hit two weeks after raising $5.4 billion though a Hong Kong IPO. According to Bloomberg, Kuaishou’s sell-off is the largest stock plunge among all 36 companies that raised over $1.5 billion through an IPO in 2021.

Chinese Estates Holdings — Shares in Chinese Estates Holdings surged 32% Thursday after the founder offered to take the company private through a $245 million buyback. The company is a longtime backer of Evergrande and shareholders have worried about Chinese Estates exposure to the crumbling real estate developer. Shares in Evergrande remain on hold since Monday, when the group announced a “major transaction” was pending but offered no further details.

7/11 — Mukesh Ambani, Asia’s richest man and owner of India telecoms conglomerate Reliance Industries, secured a contract to franchise 7/11 stores across India. The first store will open in Mumbai on Saturday.

Energy — Alternative fuel prices are surging across Asia as countries seek alternatives to the booming cost of natural gas (methane) and coal. The price of propane in Asia, which is usually sourced for cooking or making plastics, has surged to the highest since 2016. In China, the government has released stockpiles of Australian coal to cool the market and provide much needed supply. Beijing unofficially banned Australian coal from the market a year ago, in retaliation for Canberra’s push to investigate the origin of COVID-19.

Eneos Holdings — Japan oil giant Eneos Holdings plan to purchase Tokyo-based Japan Renewable Energy (JRE) for around $1.7 billion. JRE has 60 energy plants across Taiwan and Japan, focusing on solar, wind and biomass energy, although the company’s total output capacity is the same as just one nuclear power plant.

FINAL FIGURE

$300 million

India’s top court approved a government plan to pay out around $300 million in bereavement funds to the families of COVID-19 victims. When divided among India’s total 448,997 COVID deaths, the fund equals around $670 for every next of kin. India’s National Disaster Management act stipulates victims of people who die in typhoons should be awarded $5,400. The same agency is being tasked with handling payouts for COVID victims. Total claims, however, might balloon as the country’s Supreme Court expanded the definition of a “COVID death” to anyone who died within 30 days of receiving a COVID-19 diagnosis.

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