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There’s no longer any doubt that Microsoft is in China’s crosshairs

This post has been updated.

Chinese authorities have launched an anti-monopoly investigation into Microsoft’s business in China, according to a statement from a government regulator today. China’s State Administration for Industry and Commerce (SAIC) said the company had not disclosed sufficient information about its operating system and Microsoft Office, but did not elaborate.

Almost a hundred investigators paid Microsoft’s offices in Beijing, Shanghai, Guangzhou, and Chengdu surprise visits yesterday, seizing financial statements, emails, contracts, and two working computers, according to SAIC. The regulator said it was investigating the company’s vice president, senior managers, and staff in the company’s marketing and accounting departments. Microsoft said earlier that it was “happy to answer” the government’s questions.

The regulator looking into Microsoft has also been investigating chipmaker Qualcomm in an anti-trust probe that could result in penalties of more than $1 billion (paywall).

Qualcomm is in the midst of hard-edged negotiations with Chinese manufacturers upgrading to 4G technology, and as Quartz has reported, an anti-trust probe serves China’s short-term and long-term technology needs. Microsoft, as it has discovered in the last few months, is in a similar situation: Regulatory pressure could result in lower costs for Chinese users, and also encourage Beijing’s efforts to break foreign firms’ strangle-hold over crucial technology infrastructure.

China has been working on domestic operating systems for years with little luck. The country’s state-affiliated Chinese Academy of Sciences unveiled a homegrown mobile operating system called COS (for China Operating System) in January, but it was panned by internet users who took to saying COS stood for “Copy other System.” The state-owned domestic desktop operating system, Red Flag Linux, a Windows look-alike, closed down abruptly in February.

Microsoft, whose operating systems are widely used in China, is an easy target. The Chinese government barred government employees from using Microsoft’s Windows 8 operating system in May, and has reportedly pressured state-owned enterprises to follow suit. The older, more vulnerable Windows XP was used on half of all desktop computers in China, before Microsoft stopped supporting it in April.

Microsoft has struggled to make money from selling its software in China. In 2011, Steve Ballmer said that because of rampant software piracy, the company earned less in China than the Netherlands, even though it sells as many computers in China as in the United States.

That’s likely one reason why the company is focusing on China’s newly opening gaming console market. Microsoft began taking orders for the Xbox through a partnership with JD.com, an e-commerce retailer that is partially owned by internet giant Tencent.

China's Transition

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