Mark Zuckerberg and Xiaomi CEO Lei Jun discussed a potential investment by Facebook in China's top smartphone maker ahead of its $1.1 billion fundraising last month.
But a deal never materialised, several people with knowledge of the matter told Reuters.
The discussions, at a private dinner when Zuckerberg visited Beijing in October, were never formalised, three of those people said.
The sources said that 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 US 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" and linked it to a US social networking phenomenon with more than 1.3 billion users.
Facebook has long harboured 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 the middle of last year.
Xiaomi's Lei was partly put off by the potential for political fallout at home of selling a stake to Facebook while the US social network is still banned in China, two of the people said.
They added that Xiaomi also feared a tie-up with Facebook could threaten its relationship with Google, a crucial business partner. Xiaomi's phones are built on Google's Android operating system.
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; 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.
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 destabilising force for Chinese society.
Lu, however, visited Facebook's US headquarters last month, prompting speculation that relations between Facebook and China's government were warming.