BEIJING/SHANGHAI, Aug 13 ( ) - Microsoft once regarded the idea of quitting China as unthinkable. The year was 2010 and Google was about to exit due to concerns over censorship and cyberattacks. That decision was lauded by democracy activists, but not Bill Gates and Microsoft's then-CEO Steve Ballmer, who suggested Google was overreacting.
In the past five years, however, at least 15 Microsoft branch offices and joint ventures in China have been shut, corporate filings show, and Microsoft is pursuing what five company sources described as a strategy of retreat. The firm considered quitting the market in 2023 because some executives felt it took on too much geopolitical risk for too little economic return, one of them said, while stressing Microsoft has no current plans to exit. China accounted for just 1.5% of global revenue, Microsoft said in 2024.
Microsoft took a major hit from the erosion of trust between Washington and Beijing, the five people said. China has since 2017 pushed the use of domestic software, which Beijing sees as more secure and whose quality is increasingly competitive with Windows and Office. U.S. restrictions, including export controls on advanced technology, have meanwhile hindered efforts to scale Microsoft's lucrative AI and cloud businesses in China.
Details of Microsoft's internal deliberations about its future in China have not previously been reported. Other U.S. tech giants with large China businesses are also reconsidering their exposure amid geopolitical tensions. Apple plans to manufacture in India most iPhones sold to Americans by the end of 2026, while Elon Musk last month denied reports that Tesla is debating separating its China business.
Microsoft ultimately decided to remain because it had carved out a profitable business servicing Chinese companies like TikTok owner ByteDance, which need Western technology to manage overseas operations, according to three people familiar with the matter. The company also believed that it needed a presence to maintain access to China's world-class engineering talent, two of them said. Microsoft had also cultivated a relationship with the government that is among the deepest of any tech company, its former China head Alain Crozier told .
"Because of the geopolitics … some days it's a little bit harder, but we never had a crisis," he said. A Microsoft spokesperson did not address questions about the firm's deliberations on its China business but said it operates in a regulatory "environment that applies to every international supplier" and that it remains committed to the Chinese market. The state of Microsoft's China business reflects market competition, regulatory demands and technological trends, the company said.
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