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 The discussions, at a private dinner when Zuckerberg visited Beijing
in October, were never formalized, 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 $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 U.S. 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 U.S. 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 Lei was partly put off by the potential for political
fallout at home of selling a stake to Facebook while the U.S. 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.
Facebook declined to comment for this article.
Posting on the Weibo microblog on Tuesday, Lin Bin, Xiaomi's
president and co-founder, said the Chinese firm maintains good
relations with Facebook and never rejected an investment from the
U.S. company. Xiaomi said it would not otherwise comment on the
matter.
Lin neither confirmed nor denied the talks took place.
"This report is gravely mistaken. Xiaomi maintains friendly
relations with all its partners, including Facebook. Lei Jun,
(vice-president of international operations) Hugo Barra and I and
Zuckerberg and other Facebook officials all have very good
relationships. We've never "rejected an investment" or feared
Google."
GLOBAL VISION
Xiaomi ultimately announced last month it raised $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 $45 billion just
three years after it sold its first smartphone. The company had
revenue of close to $12 billion in 2014.
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 recognize 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.
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The two CEOs knew each other previously and deepened their
relationship last year. In October, Zuckerberg was invited for
dinner at Lei's Beijing home along with Facebook business
development chief John Lagerling and China head Vaughan Smith.
The next day, Zuckerberg, whose wife is Chinese-American, addressed
the prestigious Tsinghua University and won plaudits for speaking in
Mandarin during a 30-minute Q&A session.
As Xiaomi sought financing last year, ICONIQ Capital, a San
Francisco-based fund that manages several individuals' personal
wealth, including Zuckerberg's, also considered buying shares, but
ultimately did not, several people with knowledge of the matter
said. Talks about ICONIQ taking part in Xiaomi's financing were not
led by Zuckerberg himself.
ICONIQ declined to comment.
CALLED OFF
Xiaomi is China's biggest smartphone maker, according to some
industry analysts, and trails only Samsung Electronics and Apple in
global market share.
A strategic partnership with Xiaomi would give Facebook another
avenue to distribute its apps and potentially provide a powerful
ally in its bid to overturn its China ban.
For Xiaomi, access to Facebook's vast banks of user data would be
valuable as it seeks to grow into a global internet company
providing comprehensive online services.
But Lei thought it would be "too sensitive" to sell an equity stake
to Facebook given its uncertain political status in China, said one
of the people with knowledge of the matter.
China's top internet censor, Lu Wei, has warned that social media,
particularly foreign services, could be a destabilizing force for
Chinese society. Lu, however, visited Facebook's U.S. headquarters
last month, prompting speculation that relations between Facebook
and China's government were warming.
(Additional reporting by Paul Carsten in Hong Kong and Alexei
Orescovic in San Francisco; Editing by Lisa Jucca and Ian Geoghegan)
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