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Welcome to Microsoft Pri0: That's Microspeak for top priority, and that's the news and observations you'll find here from Seattle Times reporter Sharon Chan.

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March 28, 2008 12:05 PM

Microsoft in China, then and now

Posted by Benjamin J. Romano

There are a couple of interesting articles out today about Microsoft's relationship with China, past and future.

Forbes has an excerpt from "Billions of Entrepreneurs," a book by Tarun Khanna. The section on Microsoft begins at Chinese President Hu Jintao's historic visit to Microsoft in 2006 but quickly rewinds to Microsoft's decision in 1993 to launch its entry into the Chinese market from its regional base in Tokyo. "In hindsight, the location outside mainland China was costly; it kept Microsoft apart from the internal information flow," Khanna writes.

The excerpt goes on to describe how that distance clouded Microsoft's vision of the market -- make that, the bureaucracy -- to which it was selling. It also recounts the company's struggles with software piracy, which continue to this day.

Microsoft's first official localized version of Windows for the Chinese market, Windows 3.1, was blacklisted by the government. Bill Gates himself went to China to persuade President Jiang Zemin to change his position. He was rebuffed.

Here's how Khanna describes the outcome: "Unperturbed by assertions of Windows' supremacy, Jiang Zemin threatened to ban it entirely. It was suggested to the visitors that they ought to study Chinese culture to appreciate how to deal with the Chinese."

Much has changed at Microsoft, and of course, in China in the intervening years.

Today, Microsoft's bid to acquire Yahoo could face a new regulatory hurdle in China. John Markoff of The New York Times reports on the country's new antimonopoly law, set to take effect in August, which will "extend the nation's economic influence far beyond its borders."

It strengthens antitrust laws originally put on the books in 1993 -- the same year, coincidentally, that Microsoft entered the Chinese market.

The law allows Chinese regulators to scrutinize mergers of foreign companies that involve a Chinese subsidiary., the Chinese business-to-business e-commerce site that Yahoo invested in, brings the Microsoft proposal into play. As part of its investor presentation 10 days ago, Yahoo noted the value of its Asia assets, including its 28 percent stake in Alibaba, which it pegged at $2.25 a share.

Markoff writes that China's action, or lack thereof, on Microsoft-Yahoo would be watched closely by global businesses and regulators "as an indication whether [China] will play a conciliatory or a nationalistic role on the world stage."

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