Will Facebook and Twitter in China Kill Renren and Weibo?

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Editor's note: The Chinese government has since called the South China Morning Post report "incorrect," and the ban is not being lifted.

In a surprising move, China's otherwise restrictive government is lifting its ban on foreign websites in the Shanghai Free-Trade Zone.

Today's South China Morning Post is reporting that Facebook , Twitter, and other Western sites that were deemed to be politically sensitive when they were banned four years ago will be allowed to compete for users in the densely populated zone. Naturally this isn't all of China, but it's certainly a good sign that the government is moving to ease access instead of blocking it.


Initially this would probably pressure Renren and SINA's Weibo, the Facebook and Twitter of China, respectively. 

Renren and SINA opened just 1% lower on the news, but things can always get worse if Facebook eats into Renren's audience just as Twitter gnaws on the folks micro-blogging on SINA Weibo.

However, it's also possible that things can get better. For now, limiting access to Shanghai's Free-trade Zone will make Facebook and Twitter less useful than Renren and SINA Weibo. They won't be able to reach the same users. Then we get to the larger message that China is telegraphing by opening things up. If the world's most populous nation is comfortable with testing more open Internet access, the fears that have kept investor enthusiasm in check when it comes to Renren and SINA Weibo should be diminished. Advertisers that have wanted to reach the platforms' young users but were concerned about upsetting the government by dabbling in this gray area are now validated and vindicated.

In short, allowing Facebook, Twitter, and even the New York Times website in could be the catalyst to speed up the online migration. China commands the world's largest online population, and it's the world's second-largest economy. Taking steps to loosen its tight grip on the Web could lead to a renaissance of usage and monetization. That would naturally be great for Renren and SINA Weibo.

Renren could naturally use the boost. It's still not profitable, and growth has slowed dramatically. Revenue in its latest quarter grew at an 11% clip, less than half of the pace that analysts were expecting. It gets worse. Its daily deals website and online gaming operations were the real drivers, as online advertising inched a mere 2% higher for the period. SINA is holding up considerably better, but growth investors could use anything that will accelerate growth after seeing its top line climb just 20% in its latest quarterly report.

This can all backfire, of course. The loosening test can lead to unsatisfactory situations that force the government to clamp down on cyberspace again. However, for now, this is actually good news for the homegrown players. The market just doesn't realize that yet.

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The article Will Facebook and Twitter in China Kill Renren and Weibo? originally appeared on Fool.com.

Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Facebook and Sina. The Motley Fool owns shares of Facebook and Sina. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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