Business

Microsoft faces new scrutiny from Chinese regulators

A few months ago, Satya Nadella, the chief executive of Microsoft, hosted a technology summit meeting at the company's headquarters near Seattle with some of China's most powerful political leaders. He smiled for a photo while flanked by Xi Jinping, the country's president, and Lu Wei, its Internet czar.

On Tuesday, though, that harmony faded, as one of China's regulators said it would demand answers to new questions about Microsoft's business practices there.

The announcement, related to electronic data that the government collected in an antitrust inquiry, shows how a sustained effort by Microsoft to cozy up to China's leadership has done little to relieve the regulatory challenges that it faces in the country. At best, the company is getting mixed messages.

Multinational companies have for years gone out of their way to curry favour with leaders in China, one of the world's largest technology and consumer markets, which are overseen by rival regulatory agencies eager to score wins against high-profile foreign companies. For Microsoft, its setbacks in the country are galling because high rates of software piracy have limited its sales there, even though products like Windows and Office are widely used.

The Microsoft investigation raised eyebrows among some longtime Western critics who believe China uses its regulatory agencies and court system to penalize foreign companies and give homegrown alternatives a hand.

"This is about business - that's all it is," said Robert D. Atkinson, president of the Information Technology and Innovation Foundation, a nonprofit research group in Washington. "All this other stuff about hosting and being nice doesn't fundamentally change the Chinese calculation. This is the strategy they have, and they're going forward pretty relentlessly."

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Last year, Qualcomm paid a fine of $US975 million for violating China's antimonopoly law, and in 2014, Volkswagen and Chrysler were fined a total of $46 million for violating antitrust rules.

The new scrutiny of Microsoft by the regulator, the State Administration for Industry and Commerce - known as SAIC - stems from antitrust investigations of major Western tech companies in 2014.

In July of that year, about 100 SAIC officials stormed four Microsoft offices in China, questioning executives, copying contracts and records, and downloading data from the company's servers, including email and other internal communications.

The Chinese regulator on Tuesday said it was seeking answers to "major questions" that arose from the data but did not provide any further details of the investigation. Analysts have said that Microsoft's difficulties in China began in 2014, when the company decided to end support and security updates for Windows XP, a 14-year-old operating system that it hoped users would replace by upgrading to Windows 10 and other recent, more secure operating systems.

With many Chinese companies and government offices running versions of old Microsoft software like XP, the move highlighted the country's reliance on the American company. Even though the bulk of Chinese users of Microsoft software acquired pirated versions without paying Microsoft, the company was nonetheless criticised for ending support in favour of its newer software.

In an article about the investigation published Tuesday, China's state-run news agency Xinhua said that Microsoft was suspected in 2014 of causing computer compatibility problems by not fully disclosing information about its Windows operating system and Microsoft Office suite of applications.

"According to Chinese law," the article said, "incompatibility without advance warning to customers could be regarded" as being anticompetitive.

A Microsoft spokesman, who spoke only on the condition of anonymity as a matter of policy, said Tuesday that the company was "serious about complying with China's laws and committed to addressing SAIC's questions and concerns."

Microsoft has sought in recent months to improve its relations with China's government. The company held a prominent meeting of Chinese and American tech leaders in Seattle in September that was a major stop of the Chinese president during his tour of the United States.

During the meeting, Microsoft announced several partnerships, including a cooperative effort with the China Electronics Technology Group, a state-run company that makes technologies to support the Chinese military. That effort is meant to help tailor Windows 10 to the demands of the Chinese government.

Atkinson of the Information Technology and Innovation Foundation predicted Chinese regulators could use a case against Microsoft to force concessions, such as requiring the company to continue to provide support to Windows XP PCs.

Longer term, he believes Chinese leaders would like to see local alternatives to Windows to lead in the market; some popular local alternatives exist in other sectors of technology, like Internet search. One top PC maker, Dell, has begun shipping more machines in China that come with a Chinese-made operating system, NeoKylin, installed on them. It has been difficult to dethrone Windows from PCs in China, though, since so much of the world's most popular software, from games to business applications, run on it.

"I think the strategy is essentially what I term de-U.S.A.," Atkinson said.

New York Times

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