When it comes to the China market, Microsoft cannot be accused of short-termism. Back in 1998 it was one of the first foreign firms to open a research laboratory in Beijing (indeed it was its largest such lab outside of its corporate headquarters in Washington state’s Redmond). It went on to spend $100 million in China in an effort to cultivate local talent. Founder Bill Gates even made a trip to visit China’s then president Jiang Zemin.
But Gates’ meeting with Jiang didn’t go very well. The president was concerned by the dominance of Windows software. According to the book Think Like Chinese, Jiang also lectured Gates that he should study Chinese culture so as to grasp how to do better business in the country.
Jiang may have had a point. Despite heavy investment in China, the tech giant has generated little profit because of widespread piracy (see WiC66).
But Microsoft (briefly) had better news last month when it was given the green light to sell its popular games console the Xbox One in the Chinese market, starting in September.
Yusuf Mehdi, corporate vice-president for marketing and strategy in Microsoft’s devices and studios unit, hailed the breakthrough as a “monumental day”. As Mehdi told the Financial Times: “Launching Xbox One in China is a significant milestone for us and for the industry.”
But celebrations in Redmond were cut short when Beijing announced last week that it was banning the use of Microsoft’s Windows 8 operating system (OS) on government computers.
Why were the restrictions launched? Xinhua explains that the move is intended to protect computer security after the shutdown of Microsoft’s XP software, which the company stopped supporting last month. A few weeks later a major security hole was found in Microsoft’s Internet Explorer browser. Microsoft’s detractors in China complain that it was willing to abandon Windows XP despite its widespread use; so there was no guarantee it won’t do something similar with Windows 8 at a later date.
In response, Microsoft says it was surprised by the ban, as it has been working with government procurement officials to make sure Windows 8 meets standards.
The timing is interesting, to say the least. Industry observers say Beijing’s combative action is a retaliatiory act against Washington’s accusations of cyber spying in the Chinese military. Last week the US Justice Department filed criminal charges against five army officers, accusing them of stealing trade secrets from US corporations such as Alcoa, US Steel and Westinghouse. It’s the first time that the US government has charged employees of a foreign power with cybercrime. Beijing has hotly denied the allegations.
Microsoft isn’t the only US tech firm to feel the heat of Chinese indignation at spying claims. Networking equipment giant Cisco and mobile phone chipmaker Qualcomm have also come under similar scrutiny over the last year after former National Security Agency con tractor Edward Snowden released information about US government surveillance in China.
This week a report by the China Internet Media Research Centre also described China as “a main target” of US surveillance, claiming that Washington has eavesdropped on state leaders, scientific institutes, universities, companies and individuals. “The US spying operations have gone far beyond the legal rationale of ‘antiterrorism’ and have exposed its ugly face of pursuing self-interest in complete disregard of moral integrity,” Xinhua fumed.
This week Beijing also ordered state-owned enterprises to cut ties with American consulting outfits like McKinsey and Boston Consulting Group because of fears that they may be spying on behalf of the US government too, says the FT.
Meanwhile is this a complete disaster for Microsoft? “Windows is far too embedded in the Chinese economy for it to be banned completely but certainly we should expect to see sensitive offices and systems reduce if not eliminate their use of it,” says Bill Bishop, a consultant based in Beijing. But he added the recent moves signalled foreign tech firms should be “very worried about their prospects” in China.
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