Microsoft in China: Cosying up to the Government

Leo Tallay 16 May 2008, 04:03PM

By Leo Tallay

Of all the Western IT companies operating in China none has better access to the upper echelons of the Chinese Government than Microsoft.

Its chief executive officer, Bill Gates, met with no less than four government leaders during a four-day trip to China in April last year. And Chinese President Hu Jintao, for his part, visited the Microsoft campus and Gates' home during an official visit to the US in April 2006.

The Chinese version of the Microsoft Network (MSN) online portal was launched in 2005 through a joint venture between MSN and a venture fund, called Shanghai Alliance Investment Ltd. This fund was led by Jiang Mianheng, the son of former Chinese President Jiang Zemin.

Long term player

The reason for the close relationship is clear – Microsoft has been in China for years. It entered the Chinese market in 1992, initially selling software.

However, its performance in its first decade was poor and Microsoft decided its business would benefit from a strong partnership with the Chinese Government. That’s the exact opposite of what it does in the West and contradicts the guidelines in its 2004 citizenship report:

"For us, compliance means more than complying with laws and regulations that impact our day-to-day business activities. Compliance also means living our values and being accountable to Microsoft's Code of Conduct, which govern our business practice around the world."

Censored words

MSN Spaces was launched as part of MSN China in June 2005. However, attempts to create blogs with terms such as ‘democracy’, ‘human rights’ and ‘freedom of expression’ in the title were blocked, according to tests run by Amnesty International. The attempts produced an error message with the warning, "The title must not contain prohibited language, such as profanity".

Microsoft first denied it was filtering blog content, but finally admitted it was responding to directions from the Chinese Government. Tests carried out a year later showed that the list of censored words appeared to have changed. However, Microsoft never reported the list of all words banned at any particular time, leaving users in the dark and likely to self-censor more than they needed to, just to be on the safe side.

Research carried out by Reporters Without Borders in 2006 found the MSN search engine on average returned 78 per cent of results approved by the authorities when a "subversive" keyword was entered to do the search.

Blog shut down

Microsoft's self-censorship on MSN Spaces came under the spotlight in December 2005, when Chinese journalist Zhao Jing’s blog was shut down by Shanghai Alliance Investment Ltd after a request by Chinese authorities.

Zhao Jing had been writing under the pseudonym Michael Anti. His popular blog had openly criticised the authorities' crackdown on a Beijing tabloid that had exposed corruption and official abuse. Being hosted on servers located in the US meant that the blog was censored not only in China but globally.

Following an outcry, Microsoft announced it would develop a set of standards that it would adhere to in the future. The standards included removing blogs only after receiving formal legal notice from the Chinese Government, and then only in China.

However, Reporters Without Borders announced on 23 August 2007 that MSN was among the blog service providers that had signed a 'self-discipline pact' to end anonymous blogging, by "encouraging" bloggers to register their real names and contact information. The pact also said blog content should be monitored and managed.

Last October, in the lead up to the Chinese Community Party Congress, Reporters Without Borders feared a new wave of censorship and repression was imminent.

Reviving its fortunes

Toeing the Government’s line has produced positive results for Microsoft in China, at least in financial terms. The company won’t release results for its Chinese operations, but Fortune magazine estimated the revenue exceeded US$700 million last year. That is about 1.5 per cent of Microsoft’s global sales, and three times its 2004 revenue from China.

The trend also shows in the sale of personal computers in the country. Last year it was expected 24 million personal computers would be sold in China, adding to the 120 million already in use.

Although Microsoft’s China revenues average no more than US$7 for every personal computer in use – compared with US$100 to US$200 in developed countries – Bill Gates told Fortune magazine those figures will eventually converge.

He has also publicly declared that he is certain China will eventually be Microsoft’s biggest market. Microsoft's way of doing business in China has handsomely paid off, and this clearly points the way for other multinational companies on how to achieve success there, setting a worrying precedent.

More expected

Human rights groups are unimpressed. "I may not have high expectations of Baidu (a Chinese search company) as a defender of free speech, but I do of Bill Gates,” says Human Rights Watch Asia expert Sophie Anderson.

Microsoft seemed to respond to pressure in January last year, when it joined Amnesty International in a multi stakeholder initiative with academics, socially responsible investment firms, and other experts and companies, to develop a set of voluntary principles to promote and respect human rights on the Internet.

However, Microsoft's actions since then seem at odds with this initiative, as well as with its own 2003 citizenship report, where it claimed that "responsible corporate citizenship is defined by good behaviour, not good intentions".

Microsoft and the other Internet service providers do have another choice.

For more information check out our report Undermining freedom of expression in China: the role of Yahoo!, Microsoft and Google.

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After long-term imprisonment for speaking publicly about human rights issues, Wei Jingsheng was finally released with help from Amnesty International.

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