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Facebook’s hardware ambitions are undercut by its anti-China strategy

For more than a year, Meta CEO Mark Zuckerberg has made a point of stoking fears about China. He’s told U.S. lawmakers that China “steals” American technology and played up nationalist concerns about threats from Chinese-owned rival TikTok.

But now Meta has a growing problem: The social media service wants to transform itself into a powerhouse in hardware, and it makes virtually all of it in China.

So the company is racing to get out.

That transition has been harder than expected. While hardware giants like Apple have moved some production to places like India and Vietnam in recent years — responding to growing tariffs, former president Donald Trump’s trade war, and rising wages in China — Facebook has hit walls, say three people familiar with the discussions, who spoke on the condition of anonymity to describe internal conversations.

Until recently, the people said, Meta executives viewed the company’s reliance on China to make Oculus virtual reality headsets as a relatively minor concern because the company’s core focus was its social media and messaging apps.

All that has changed now that Meta has rebranded itself as a hardware company, the people said. Beyond last year’s name change from Facebook to Meta, the company has undertaken a broad internal reorganization, launched augmented-reality smart glasses, and is building a connected device that could be worn on a person’s wrist. In October, the company introduced Meta Quest Pro, the first in a new line of headsets built for collaboration.

Internal concerns about the hardware push intensified last year, when some executives worried that the anti-China strategy — crafted by executives in Washington and Menlo Park during the latter years of President Donald Trump’s administration — would hurt its business ambitions and be viewed by the public and regulators as hypocritical, given the company’s growing reliance on China for its plans.

The executives discussed ways to shift components and manufacturing for a planned smartwatch from China so the company could demonstrate to U.S. customs authorities that it merited a Made in Taiwan label — instead of one that says Made in China. They thought a Made in Taiwan label would save the company on tariffs and be a better look politically. But doing so was very difficult because the supply chain for smart electronic devices is in China, the people said, and countries such as Vietnam, Taiwan and India are only starting to develop those capabilities.

Company leaders also hoped to obtain a Made in Italy label for its smart glasses, made in partnership with Ray-Ban, but doing so also wasn’t feasible, the people said. Executives also looked, unsuccessfully, for ways to move manufacturing of Oculus to Taiwan.

“Meta is building a complicated hardware product. You can’t just turn on a dime and make it elsewhere,” said one of the executives.

Meta acknowledged that it was seeking new places to locate its manufacturing. While the original smartwatch plan was abandoned, the company continues to work on a wearable device for the wrist, according to two people familiar with the company’s plans.

“At present, Meta’s consumer electronics hardware is manufactured in China but we are constantly reviewing and exploring supply chain opportunities around the world,” spokeswoman Ha Thai said.

In response to questions about whether the company had concerns about retaliation from China due its strategy, she said, “We believe the U.S. needs to rise to the competitive moment. That means ensuring we create an environment that promotes the innovation and investment needed to compete and win in defining the future of the Internet.”

Facebook’s public criticism of China began in 2019 when Zuckerberg warned, in a speech at Georgetown University, that China was exporting a dangerous vision for the internet to the rest of the world — and noted that Facebook was abandoning its efforts to break into that country’s market. The anti-China stance has since extended into a full-blown corporate strategy. Nick Clegg, the company’s president, wrote an op-ed attacking China in The Washington Post in 2020, the same year Zuckerberg attacked China in a congressional antitrust hearing. And quietly, Meta has funded a nonprofit, American Edge, that runs online advertising and other campaigns that are critical of the country and of TikTok, the Chinese-owned social media app.

Meta’s attacks have enraged Chinese commentators allied with the government’s agenda. Nationalists in China have accused Zuckerberg of cynically using geopolitics to ward off regulatory scrutiny at home, and some Chinese analysts have argued that Meta was resorting to desperate measures because it feared TikTok owner ByteDance’s growing dominance in short video.

Analysts say that so far, it’s unclear if China would retaliate against Facebook’s fledgling hardware business for its statements on China. The business is still relatively small compared to players such as Apple and Tesla, and Chinese manufacturers tend to be very tight-lipped about business dealings. And, even though Chinese consumers are not allowed to use the social network, Chinese companies spend heavily on Facebook advertising to reach consumers around the world.

Ming-Chi Kuo, an analyst at Hong Kong-based TF International Securities who speaks regularly to GoerTek, a Chinese supplier to Meta, and other companies, said that Meta’s Chinese partners were watching the situation closely. GoerTek declined to comment.

KC Quah, senior director analyst with Gartner, a technology research and consulting firm, said Meta had reason for concern. “How do they not get perceived as talking out of both sides of their mouth, buying heavily from China to establish a hardware business while having an anti-China strategy?” he said. Eighty percent of smartwatches and 80 percent of smartphone components, he noted, are made in China.

At one time, Facebook was one of the companies that worked hardest to gain access to China’s massive market for consumer technology. As recently as 2016, Zuckerberg posted photos of himself jogging mask-free in Beijing’s smog-filled Tiananmen Square in 2016 and gave a speech in Mandarin.

But China ultimately rebuffed efforts by Facebook and other U.S. consumer tech companies to gain entry to its market, and by 2018, many had given up. In his 2019 Georgetown speech, Zuckerberg conceded that the China dream was over. “I worked hard to make this happen. But we could never come to agreement on what it would take for us to operate there,” he said. He warned there was “no guarantee” that American values of free expression would win out.

The company’s China stance had changed dramatically. Soon Zuckerberg would dig in further.

At the antitrust hearing in Congress in 2020, Zuckerberg used his opening remarks to attack China in terms that went much further than his industry peers. He said it was “well-documented that the Chinese government steals technology from American companies,” and repeated that the country was “building its own version of the internet” that went against American values. He described Facebook as a “proudly American” company and noted that TikTok was the company’s fastest-growing rival.

Political opportunism was a big impetus for the speech, said two of the people. Executives in the company’s Washington office thought they could deflect growing criticism of the company by pointing a finger at China, they said.

The executives also were interested in finding ways to align themselves more closely with the anti-China wing of the Trump administration, which had launched a trade war with China, imposed tit-for-tat tariffs, and was pursuing its own campaign against TikTok, the people said.

“They were trying to find things that [Zuckerberg] could agree with Trump on, and it’s a pretty slim list,” said one of the people, describing how the company landed on its anti-China strategy. “If you’re not going to try to be in this country anyway, you might as well use it to your political advantage by contrasting yourself with Apple and TikTok.”

The Biden administration so far has largely kept Trump’s tariffs in place. Analysts say, with anti-China sentiment seeming relentless among both major political parties in Washington, that is unlikely to change because the president doesn’t want to risk being accused of being soft on China.

Executives are still hoping the hardware-focused rebranding will shift the conversation away from criticism of its social media business, said two of the people.

But they are well aware that relying on China for a growing suite of virtual reality headsets, smartwatches and other hardware will invite a new set of political challenges. Companies dependent on China for manufacturing have faced criticism over shipping jobs overseas as well as environmental and labor rights issues, and have had their businesses impacted by trade wars and other political escalations.

“You trade in one set of problems for another,” said one of the people. The Washington Post

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