Microsoft Retreats In China

Microsoft has been steadily scaling back its China presence, closing at least 15 branch offices and joint ventures over the past five years as Beijing favors domestic software. U.S. export controls also make it harder to grow its cloud and AI businesses, leaving the market with relatively little economic upside. Microsoft took a major hit from the erosion of trust between Washington and Beijing, the five people said. China has since 2017 pushed the use of domestic software, which Beijing sees as more secure and whose quality is increasingly competitive with Windows and Office. U.S. restrictions, including export controls on advanced technology, have meanwhile hindered efforts to scale Microsoft’s lucrative AI and cloud businesses in China.

[…] Microsoft ultimately decided to remain because it had carved out a profitable business servicing Chinese companies like TikTok owner ByteDance, which need Western technology to manage overseas operations, according to three people familiar with the matter. The company also believed that it needed a presence to maintain access to China’s world-class engineering talent, two of them said. Microsoft had also cultivated a relationship with the government that is among the deepest of any tech company, its former China head Alain Crozier told Reuters. “Because of the geopolitics … some days it’s a little bit harder, but we never had a crisis,” he said.

A Microsoft spokesperson did not address questions about the firm’s deliberations on its China business but said it operates in a regulatory “environment that applies to every international supplier” and that it remains committed to the Chinese market. The state of Microsoft’s China business reflects market competition, regulatory demands and technological trends, the company said.