Microsoft Faces Investigations in China

According to a report by the South China Morning Post, Microsoft is officially under investigation by the Chinese government as of July 28, 2014. Officials visited Microsoft offices in Shanghai, Beijing, Chengdu, and Guangzhou representing the State Administration for Industry and Commerce (SAIC). This investigation comes in the wake of several media accusations against US-based tech industries.

microsoft

Microsoft’s HQ in Beijing Photo: TonyV3112 / Shutterstock

China Central Television (CCTV) has remained suspicious of companies based in Silicon Valley ever since Edward Snowden’s revelations regarding domestic and international surveillance by the US National Security Agency. Microsoft, meanwhile, cites antitrust reasons for the investigation.

While Chinese media has been critical of US-based tech companies, its own tech industry has worked to provide consumers with national alternatives.

Although a Wall Street Journal report warns that products such as the China Operating System have “little chance of becoming widely used in the competitive mobile market,” nationalist sentiment from the user end may help bolster sales to Chinese consumers.

Earlier in July another CCTV broadcast cautioned against Apple’s iPhone. The nation-wide television report discussed the Apple iOS 7’s “frequent location” feature as a major security threat.

Broadcasters feared such information could be used to reveal economic or state information. Although they did not directly accuse Apple of attempting to collect information on Chinese citizens, reporters warned that US tech giants’ expansive databases are “a gold mine” for consumer information. At present, Apple iPhones appear to be a popular choice for high-ranking government officials in China.

This is not the first time Microsoft has made headlines in China. A 2012 revelation from a Microsoft China employee implicated the company in illegal business practices such as bribery, although no formal charges were made.

More recently, governments prohibited the use of Windows 8 on official computers. Although Beijing officially cited stability reasons (following an administrative clamor after Microsoft removed support services for its XP operating system), CCTV accused Windows 8 of being another security threat just days later.

US-based tech companies with a strong presence in China are coming under increasing pressure to reassure the nation’s rising cybersecurity concerns. These companies currently enjoy a broad market in China’s growing youth and young adult population. The Wall Street Journal suggests sales are still increasing:

In the most recent quarter, 25% of Apple’s global revenue came from greater China, which includes Hong Kong and Taiwan, and sales have grown 13% in the region during the past year.

There is presently a push away from US dependency due to both economic and political competition. China remains an important consumer market for US tech companies and investigations such as the current one with Microsoft, which will raise serious questions from Microsoft shareholders.

The Microsoft investigation comes amid heightened tension between China and the United States over joint accusations of cybersecurity breaches.

In May, the US indicted five Chinese military officials for stealing US business secrets. This prompted outrage from both the foreign ministry and state media outlets in China, accusing the US of hypocrisy and spreading false propaganda. Foreign Ministry spokesperson Qin Gang called the case “absurd” and denied online hacking activity by the Chinese government.

Academic experts in China suggest that whether or not the charges are true, the case warrants professional criticism of US behavior. In light of the post-Snowden media frenzy, the US has had a difficult time maintaining credibility in the eyes of the Chinese public. Others are taking a more unorthodox approach: Shen Dingli of Fudan University in Shanghai states, “Everybody is doing it [hacking]. A mature country would not make it a big issue.”

Despite cybersecurity concerns, Microsoft believes the investigation falls under an antitrust campaign. China’s antitrust regulator accused Qualcomm of a monopoly just days prior to sending officials to Microsoft’s offices on the mainland. Microsoft itself has released little information, but the spokesperson for Microsoft China assures the public it will actively cooperate with the investigation.