Facebook And Xiaomi Talked Investment, But No Deal

Facebook’s Mark Zuckerberg discussed an investment in China’s top smartphone maker, Xiaomi, with that company’s CEO before its $1.1 billion round of fundraising in December, Reuters reported on Monday (Jan. 12).

But the deal never materialized, several unnamed sources told Reuters, in part because of concerns about pushback from Chinese authorities. Facebook has been banned in China since 2009.

The informal discussions took place at a private dinner when Zuckerberg visited Beijing in October. Zuckerberg and Xiaomi CEO Lei Jun reportedly discussed the political and commercial implications of Facebook buying into Xiaomi, which is now valued at $45 billion and is rated as the world’s third-largest smartphone company.

Although the contemplated investment wasn’t huge, a Facebook investment would have raised Xiaomi’s international profile and linked it to Facebook’s more than 1.3 billion users. The deal would also have given Facebook a foot in the door for the world’s largest market, especially at a time when the social networking giant is reportedly putting the finishing touches on the kind of payments-by-messaging system that’s very familiar to Chinese mobile users.

“Facebook wants to get into China, and Xiaomi is keen to expand outside, so they both recognize the importance of working together,” one unnamed Reuters source said.

But Facebook, like Google and Twitter, has been blocked by China’s Internet censors, who cite national security concerns. China’s top Internet censor, Lu Wei, has warned that social media — particularly foreign services — could be a destabilizing force for Chinese society. However, Lu visited Facebook’s U.S. headquarters last month, prompting speculation that relations between Facebook and China’s government were warming.

At the time of the October dinner, the two CEOs already knew each other. Zuckerberg was invited for dinner at Lei’s Beijing home along with Facebook business development chief John Lagerling and China head Vaughan Smith to discuss a possible deal.

In the end, Lei reportedly thought it would be “too sensitive” to sell an equity stake to Facebook given its uncertain political status in China. Lei also feared problems with Google, whose Android operating system is crucial for Xiaomi’s phones.

Xiaomi announced last month it raised $1.1 billion from investors that included Hong Kong-based tech fund All Stars Investment, private equity firm DST Global, Singapore sovereign wealth fund GIC, Chinese fund Hopu Management, and Alibaba founder Jack Ma’s Yunfeng Capital.