Zuckerberg Signals That Facebook is Beginning to Cautiously Eye China

China, which has lured and disappointed numerous U.S. consumer Internet companies, is finally beginning to attract Facebook chief executive Mark Zuckerberg’s eye.

“How can you connect the whole world if you leave out a billion people?” he said during Y Combinator‘s Startup School at Stanford University yesterday.

Zuckerberg said Facebook, which has historically made China a low priority, is focusing on the last four markets where it is not in a position to grab dominant market share this year. The social network is currently blocked there, although it has about 75,120 reported users in the country.

Those four markets — South Korea, Japan, China and Russia — have become a key priority in 2010, so much so that Facebook has sent a few of its top engineers to Japan to configure a local version of the site that works better with mobile phones there.

“Western companies haven’t typically had a huge amount of success in a few of the Eastern countries,” he said. “Facebook has been no exception.”

Zuckerberg said that if the company could crack Japan, South Korea and Russia, it would begin to focus on China perhaps in a year.

“We have to carve off China. That one is extremely complex and has its own dynamics,” he said. “Our theory is that if we can show that we as a Western company can succeed in a place where no other country has, then we can start to figure out the right partnerships we would need to succeed in China on our terms.”

Zuckerberg signaled that Facebook would be accommodating in following China’s domestic laws in  order to break into the market. That would be a striking difference from Google, which decided to stop censoring its search results earlier this year partly on grounds of free speech.

“On the philosophical question of openness, my view is that every country is pretty different. We’d want to be pretty culturally sensitive,” he said. “I don’t want Facebook to be an American company. I don’t want it to be a company that spreads American values across the world.”

He gave examples of how Facebook took down content that violated local laws in Germany and Pakistan. In Germany, the company blocks Nazi content and in Pakistan, the company had to take down an “Everyone Draw Mohammed Day” Facebook Page to follow laws that ban visual representations of the prophet.

“My view is you want to be really culturally sensitive. China has values that are somewhat different from the U.S.,” he said. “I would spend a lot of time studying it.” He added that he devotes an hour a day to learning Chinese.

But policy issues alone are not the only barrier to Facebook’s growth in China. There is a stronger cultural preference for anonymity in the market given censorship laws, strong incumbent competitors in social networking and virtual goods and weak intellectual property laws.

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