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Facebook said to have discussed investment with Xiaomi

Investment in the Chinese tech giant failed to materialize after Xiaomi backed out due to concerns over a potential political fallout, Reuters reported.

James Martin/CNET

Facebook CEO Mark Zuckerberg considered making an investment in Xiaomi ahead of the Chinese smartphone maker's $1 billion funding round last month, according to Reuters.

The investment, which Zuckerberg discussed with Xiaomi CEO Lei Jun during a private dinner in Beijing last month, was expected to hold international benefits for both companies but never materialized, according to Reuters, which cited unidentified sources.

Investment talks are said to have been called off after Lei grew concerned about political fallout for the Chinese company.

Xiaomi declined to comment. Facebook representatives did not immediately respond to a request for comment.

The discussed investment was described as not being very large but highlights the growing interest US tech companies have shown in China. While Facebook is banned in China, Zuckerberg has not abandoned ambitions of expanding the social-networking giant into the world's most populous nation.

The investment was expected to expand the international brand recognition of Xiaomi, which is tops in China but has overseas ambitions. Xiaomi has been on a tear of late, vaulting into the No. 3 position among global smartphone makers by selling low-cost smartphones and tablets aimed at budget-conscious customers in markets such as China, Indonesia and India. The 4-year-old company became the world's most valuable venture-backed startup last month when it secured $1.1 billion in venture capital funding, giving it a valuation of $45 billion.

Despite its rapid sales growth, Xiaomi faces obstacle to expansion into developed markets due to concerns over intellectual property. The company has also been criticized for the similarities between its devices and Apple's, with Apple design chief Jony Ive accusing Xiaomi of design "theft."

Xiaomi will be launching a new flagship handset this coming Thursday in Beijing, and CNET will be on hand to cover the launch.

CNET's Steven Musil contributed to this report.