How Bad Is Facebook’s New China Problem?

Another shoe dropped in the New York Times investigation of Facebook’s deals with phone makers across the world: A Chinese connection emerged, touching the data scandal to the politically electric topic of the United States’ biggest economic rival.

Beginning in 2007, Facebook cut deals with 60 phone manufacturers to put versions of the service onto their devices, and among those companies were four Chinese manufacturers, including Huawei, which U.S. intelligence services have repeatedly linked to the Chinese government. Earlier this year, the heads of the NSA, FBI, and CIA warned against using Huawei phones.

Also in 2007, Bain Capital, the U.S. networking company 3com, and Huawei proposed a multibillion-dollar deal, only to be scuppered by U.S. officials over security concerns. That is to say, this was a concern Facebook knew or should have known even back in the era when these deals were negotiated.

Facebook maintains that Huawei stored Facebook data locally on devices, and did not send it to the company’s own servers, where presumably it would have been more open to collection by Chinese authorities.

Senators Marco Rubio and Mark Warner both voiced their displeasure over the revelation. Even before the new Times story came out, Warner, who has been tussling with Facebook for the past year, had already pointed out that Chinese companies were probably among the 60 device manufacturers that Facebook cut deals with to develop versions of their service for those phones. “I believe it’s a serious danger,” he said. “I’ve been disappointed we’ve not gotten a straight answer.” Warner tweeted that he wanted “the whole story, now, not six months from now.”

At the same time, the Trump administration reportedly is close to cutting a deal with another Chinese phone maker, ZTE, to return to the U.S. market, after the United States says it violated trade embargoes with North Korea and Iran.

Given the tensions between the United States and China, the dominance of the two countries’ technology firms, and the size of their markets, it’s no surprise that their governments are fighting for power in this realm.

While some American technology companies have taken more or less principled stands on the Chinese market because of the ethical dilemmas the government poses, American technology companies still made more than $100 billion there last year. Chinese factories assemble the most valuable American companies’ products, with Apple the most notable among them.

Certainly, it looks bad for Facebook to have made and kept these agreements with Huawei. It calls to mind the memo that the senior executive Andrew Bosworth wrote (and later disavowed) about the company’s growth, in which he pondered what the company might have to do to break into the Chinese market.

“We connect people. Period. That’s why all the work we do in growth is justified. All the questionable contact-importing practices,” he wrote. “All the subtle language that helps people stay searchable by friends. All of the work we do to bring more communication in. The work we will likely have to do in China some day. All of it.”

At the same time, it’s worth thinking through who would likely have been affected by any data flow that resulted from the deal that Facebook cut. “This could be a very big problem,” tweeted Marco Rubio, for example. “If @Facebook granted Huawei special access to social data of Americans this might as well have given it directly to the government of #China.”

But how many Americans might we be talking about?

Huawei is roughly tied with Apple as the second-largest smartphone maker in the world with around 10 percent of global market share. Its largest business remains selling networking equipment, which positions the company slightly differently from any U.S. company. Huawei is built like a combination of Qualcomm (wireless networking equipment), Cisco (networking infrastructure), and Apple (consumer devices).

Most of the company’s sales come from China. The company has basically no market share in the United States, but as a 2017 Forbes article noted, the company’s phones are now popular in many European countries including Finland, Italy, Poland, Spain, Germany, and France. Right now, it’s unclear if the company’s new smartphones operate with the technical tools and under the agreements referenced in the Times reporting. Given the heat that Facebook has faced in Europe, the latest revelations probably won’t make things any easier for the company in Brussels.

From the Times reporting, we know that the devices were able to pull Facebook data on friends and friends of friends, which could lead one device to capturing some data on hundreds of thousands of people. Huawei’s market share was much, much lower in the days when these agreements were cut, so we don’t know how many phones currently in use would be affected by any possible data flow. But given that there are Americans who have long been connected to people in China and Europe and other markets with Huawei phones, it’s probable that the Huawei devices could have accessed some American data at some point. No one can yet say how many Americans could even hypothetically be in the widest possible ring of affected people.

It’s worth asking how significant that data might be, too. At the friends level, devices could work through a Facebook account to pull a lot of information about someone’s connections. At the friends of friends level, the devices were pulling only the existence of the friends and those users’ Facebook IDs.

In the latter case, no data would be better than some data, but it’s not highly sensitive or valuable information, and I can’t imagine that the Chinese authorities would be salivating over it, nor would this be their only means to obtain such information.

Given all this, and given that it almost certainly was going to come out after Sunday’s Times report, it’s surprising to me that Facebook did not just admit that the Chinese companies, particularly Huawei, were among the manufacturers that it had cut deals with. If nothing else, their reticence adds to the sense expressed by Congressional leaders (and just about everyone else) that maybe Facebook is not always completely forthcoming about its problems.