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This Move Won't Get Twitter Into China

By Andrew Tonner - Apr 25, 2016 at 8:42PM

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Twitter's choice for managing director for Greater China sparked criticism in China, but how should Twitter investors view this move?

Source: Twitter.

Much like dominant U.S. Internet companies Facebook and Alphabet, microblogging turnaround story Twitter (TWTR 1.89%) has a China problem.

Specifically, Twitter remains unable to legally operate in the world's most populous nation, at a time the company badly needs new users to fuel its long-term growth.

In an apparent bid to expand its presence in the PRC, Twitter recently hired its first-ever managing director for Greater China. But while this news might comfort skittish investors, not everyone was celebrating.

Meet Twitter's controversial new China managing director
Earlier this month, Twitter announced it had hired Kathy Chen to help expand the company's presence in China. Before joining Twitter, Chen worked in the Chinese operations of Cisco Systems and then Microsoft.

Rather than try to actively influence the Chinese Communist Party's ban on the service, Chen will apparently keep busy working on various business development initiatives. Twitter has reportedly said that Chen's core responsibilities will include introducing Twitter's "advertising platform, customer service, data analytics, and developer platform" to Chinese businesses interested in expanding their own footprints abroad.

That all sounds innocuous enough. However, Chen's hiring sent up howls from some corners of the Chinese Internet.

That's because, before moving into the private sector, Chen worked as a software engineer for the People's Liberation Army, China's military. Some of China's Twitter users -- those who manage to work around the government ban -- didn't greet Chen's former ties warmly.

"It's not a place for CCP [Chinese Communist Party] propaganda, go away," one user tweeted, according to Bloomberg. That was just one of a steady stream of 140-character aspersions cast on her in the wake of the announcement.

Given her background, "she may appear more empathetic to the Chinese government," journalism professor Cheung Siu Wai told Bloomberg, adding, "We don't think that's a way to make any headway into the Chinese market."

But how should Twitter investors view this situation?

Won't move the needle
Though adding Chen is easy to interpret as an expression of Twitter's interest in China, the move seems unlikely to lay the groundwork for Twitter to move full bore into the country -- for a few reasons.

First off, the Chinese government is behind Twitter's ban -- unlike Alphabet, which elected to cease its services in China on its own. Reportedly unnerved by the role social media played in the 2009 Green Revolution in Iran, the Chinese government blocked Twitter that June, before the 20th anniversary of the Tiananmen Square protests.

So Twitter's ability to enter or exit China is largely out of its control. It's also unclear whether Twitter would agree to the strict censorship requirements the Chinese government would probably demand of the service if its ban were ever lifted.

Source: Twitter.

Nor is it clear what kind of market opportunity Twitter might enjoy in China. As has happened with other Internet-based services, Twitter's absence has allowed a homegrown alternative to its microblogging service to proliferate. Often described as the "Twitter of China," Sina (SINA) Corporation's partially owned Weibo (WB 2.50%) service is making the most of Twitter's absence. Weibo saw its users grow 34% to 236 million at the end of calendar year 2015, according to its earnings report.

Seen this way, Weibo user growth compares rather favorably with the 9% year-over-year increase in monthly active users Twitter saw during its most recent quarterly report. It's also worth noting that Twitter's 320 million total monthly users still exceed Weibo's 236 million by a fair margin.

Either way, the brisk expansion of Sina's Weibo prompts the question of just how robust an opportunity expanding into China could present Twitter and its investors. So even though it makes no difference now, building a team to help Chinese businesses advertise internationally indeed seems the correct strategy for Twitter at this point.

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Stocks Mentioned

Twitter, Inc. Stock Quote
Twitter, Inc.
$39.41 (1.89%) $0.73
Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
$170.16 (7.19%) $11.41
Microsoft Corporation Stock Quote
Microsoft Corporation
$267.70 (3.42%) $8.84
Alphabet Inc. Stock Quote
Alphabet Inc.
$2,359.50 (5.11%) $114.66
SINA Corporation Stock Quote
SINA Corporation
Cisco Systems, Inc. Stock Quote
Cisco Systems, Inc.
$44.10 (2.73%) $1.17
Alphabet Inc. Stock Quote
Alphabet Inc.
$2,370.76 (5.20%) $117.07
Weibo Corporation Stock Quote
Weibo Corporation
$23.82 (2.50%) $0.58

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