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Publish Date : 14-Jan-2015

Mark Zuckerberg and Xiaomi Inc CEO Lei Jun discussed a potential investment by Facebook in China's top smartphone maker ahead of its US$1.1 billion fundraising last month, but a deal never materialised, several people with knowledge of the matter told Reuters. The discussions, at a private dinner when Mr Zuckerberg visited Beijing in October, were never formalised, three of those people said, as the two CEOs weighed the political and commercial implications of Facebook - which has been banned in China since 2009 - buying into the Chinese tech star now valued at US$45 billion.

One individual with direct knowledge of Xiaomi's fundraising said the mooted Facebook investment was "not huge", but the talks underscore how ties between US and Chinese companies have deepened as China's tech industry matures. A Facebook investment in Xiaomi would have raised the international profile of the popular handset maker dubbed "China's Apple" by its fans and linked it to a US social networking phenomenon with more than 1.3 billion users.
Facebook, for its part, has long harbored ambitions to expand into the world's most populous country, potentially with partners. One of the individuals said Facebook and Xiaomi began discussing a possible investment in mid-2014.

Xiaomi's Mr Lei was partly put off by the potential for political fallout at home of selling a stake to Facebook while the US social network is still banned in China, two of the people said, adding Xiaomi also feared a tie-up with Facebook could threaten its relationship with Google Inc, a crucial business partner. Xiaomi's phones are built on Google's Android operating system. Xiaomi ultimately announced last month it raised US$1.1 billion from investors including Hong Kong-based tech fund All Stars Investment; DST Global, a private equity firm that has invested in Facebook and Alibaba Group; Singapore sovereign wealth fund GIC; Chinese fund Hopu Management; and Alibaba founder Jack Ma's Yunfeng Capital.

The fundraising valued Beijing-based Xiaomi at US$45 billion just three years after it sold its first smartphone. The company had revenue of close to US$12 billion in 2014. Mr Zuckerberg has eyed China as a critical piece of his vision to connect the global population. But, like Google and Twitter, the social networking giant has been blocked by China's internet censors, who cite national security concerns. "Facebook wants to get into China, and Xiaomi is keen to expand outside, so they both recognise the importance of working together," said one of the knowledgeable individuals, none of whom wanted to be named due to the sensitivity of the matter. Xiaomi and Facebook declined to comment for this article.

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