LinkedIn is quitting China: but what of its parent, Microsoft, and its links to the world’s second-largest economy?

Seattle-based Microsoft has one of the longest relationships with China of any major Western tech company. Founder Bill Gates has met every Chinese leader from Jiang Zemin to Xi Jinping. Yet the returns on this long strategic investment are looking pretty meager these days. Microsoft garnered just 1.8 percent of its 2019 global revenue in China, company president Brad Smith said in January 2020.¹Microsoft reported about $125 billion in revenue in 2019.

Doing business in China is getting tougher for Microsoft, along with other foreign tech firms. LinkedIn cited “a significantly more challenging operating environment and greater compliance requirements” among its reasons for leaving (although it left out those points in its Chinese-language explanation). 

This week, The Wire looks at Microsoft’s China business, including what’s left and the concessions it has had to make in order to stay.

STURDY WINDOWS

Microsoft established its first joint venture with Chinese conglomerate CENTEK and electronics company Stone Group in 2002 to develop software for organizations and government. A second JV followed later that year with an investment firm run by then-Chinese President Jiang Zemin’s son to establish Wicresoft, a software and outsourcing firm. Its main product in China has, though, long been the Windows operating system. Close to 90 percent of Chinese desktop users still run Windows, according to StatCounter, including the central government. 

But the Windows relationship has been the source of recurring friction too. Chinese authorities responded angrily in 2014, after Microsoft announced it was discontinuing technical support for Windows XP, its then 13 year-old operating system that was still widely used in China. Regulators subsequently banned Microsoft’s new system, Windows 8, and trustbusters raided the company’s China offices alleging monopolistic behavior, in a case that remains unresolved. 

The Snowden revelations in 2013 about software backdoors for U.S. intelligence agencies also engendered distrust in Beijing. Partly in response, Microsoft established a joint venture in 2017 with China Electronics Technology Group Corporation (CETC), a state-owned defense conglomerate, to supply a customized version of Windows 10 to the Chinese government. Microsoft hasn’t specified how it modified the operating system. 

CETC is a supplier to Chinese security forces in Xinjiang, providing surveillance equipment including systems for facial recognition and flagging individuals as potential threats, according to Jonathan Hillman in The Digital Silk Road, a book about China’s digital infrastructure.

Microsoft manages other products via local partnerships. 21Vianet Group, a Chinese data service provider, operates Microsoft’s Office 365 productivity suite and Azure cloud-computing service, ensuring that customer data are retained within China’s borders, in line with stringent localization requirements. 

Yet with such partnerships, Microsoft risks revealing intellectual property to potential competitors, as well as offering security vulnerabilities that malicious actors could exploit. After a major hack of Microsoft’s Outlook email service was revealed in March, the company said it suspected the Chinese government had sponsored the attack.

A spokesperson for Microsoft declined to comment for this article.

PLATFORM DECOUPLING

China’s dependence on Windows means it’s unlikely Microsoft would or could fully withdraw anytime soon. Still, tightening scrutiny over tech firms on both sides of the Pacific means other Microsoft products could suffer LinkedIn’s fate. 

One product under the spotlight is Github, the world’s most popular code hosting site, where open source software developers collaborate on millions of projects. Almost 10 percent of Github’s contributors came from China, a proportion it expects to grow over the next five years. 

But the platform has drawn attention in China after hosting some high-profile dissent campaigns, and was briefly banned in 2013. In 2019, anonymous tech workers created a Github project called 996.ICU that named and shamed Chinese tech companies that adopted the brutal 9am-9pm, 6 days a week work schedule. Beijing has also pressured Github into removing several politically sensitive projects, with takedown requests increasing since 2019. Github, which Microsoft bought in 2018, discloses all government takedown requests with which it complies. 

China’s Ministry of Industry and Information Technology (MIIT) has been championing homegrown alternatives to Github such as Gitee, which hosts the open source files for HarmonyOS, Huawei’s rival mobile operating system to Android and iOS. Another competitor, U.S.-based Gitlab, recently set up an independent office in China, in a move seemingly designed to give it a foothold in the country while complying with data security regulations. Gitlab’s China office has shown little compunction about complying with the Chinese authorities’ takedown requests so far.

There’s still evidence of an enduring special relationship between Microsoft and China. When the Trump administration turned against the wildly popular social media app TikTok in August 2020, its Chinese owner ByteDance turned first to Microsoft as a potential buyer — Zhang Yiming, ByteDance’s founder, had a brief stint at Microsoft in 2008. But the deal ultimately fell through and the Trump administration later appeared to lose interest in TikTok, leaving Microsoft CEO Satya Nadella to muse in September that the TikTok deal was the “strangest thing I’ve ever worked on”.

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