Microsoft (MS) has closed at least 15 branches and joint ventures in China over the past five years, according to findings. With China's policy to promote domestic software overlapping with U.S. export controls on advanced technology, MS even considered pulling out of the Chinese market.
Even so, MS is focusing on shifting the center of gravity of its business instead of leaving China. It has found a new revenue source in providing cloud and artificial intelligence (AI) technology to Chinese corporations expanding overseas, and it also needs to maintain ties with China's strong pool of technical talent.
On the 13th (local time), Reuters said an analysis of corporations' registration filings showed at least 15 MS branches and joint ventures in China shut down over the past five years.
In fact, MS also considered a plan in 2023 to fully withdraw from the Chinese market. Some executives judged that the geopolitical risks were excessively high compared with the economic gains from its China business. According to MS, sales in China in 2024 accounted for only 1.5% of total sales. However, MS's position now is that it has no plans to withdraw from China.
MS's business in China appears to have been squeezed by both China's policy of fostering domestic software and U.S. technology controls targeting China. Since 2017, China has encouraged the use of domestic software. Foreign operating systems (OS), including Windows, were not recognized as meeting the government's procurement standard of being "safe and reliable." U.S. restrictions on exporting advanced technology also became an obstacle to MS expanding its highly profitable AI and cloud businesses in China.
Instead, MS found new business opportunities among Chinese corporations going abroad. Chinese corporations operating in Western markets, such as TikTok parent ByteDance and fashion company Shein, are using MS's Azure cloud service to manage data in line with overseas regulations.
In particular, through Azure, MS enables Chinese corporate clients to use AI models from Western firms such as OpenAI that do not provide services directly in China. According to MS officials, by the mid-2020s the field supporting Chinese corporations' overseas operations had become the largest institutional sector within MS's China-related business.
In this environment, the growth of Chinese AI corporations is a variable. While MS's AI business relies on external firms such as OpenAI, Chinese AI models like Kimi are cheaper than Western products while growing more competitive. If Chinese corporations choose domestic AI models, they would not necessarily need to use Azure, Reuters noted.
Another reason MS is not leaving China is technical talent. Since the 1990s, MS has nurtured research and development (R&D) talent in China. Among those from MS Research are senior figures at Chinese AI corporations SenseTime and DeepSeek.
As U.S.-China competition for technology supremacy has intensified, MS even considered closing its China research labs but ultimately chose to move some key personnel overseas. However, relocating staff was not easy. In 2024, MS offered 1,000 core engineers in China the chance to move their workplace to the United States and three other Western countries, but only about one-third accepted. Many senior engineers moved to Chinese universities and local tech corporations.
In the end, MS has effectively chosen a strategy of reducing the scale of its China business while leaving a consolidation with China in place. By finding business opportunities among Chinese corporations expanding overseas and continuing access to local technical talent, it is seeking new pathways for its China operations amid U.S.-China tech tensions. However, the industry says it remains to be seen whether this strategy will continue to produce results as the competitiveness of Chinese AI models rapidly increases.