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China Raids Microsoft Offices in Anti-Monopoly Investigation

It's the Newest Sign of Tensions Between China and U.S. Tech Companies

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Microsoft is in the crosshairs in China.
Microsoft is in the crosshairs in China. Credit: Akos Stiller/Bloomberg

China regulators opened an anti-monopoly investigation into Microsoft Corp., seizing computers and documents from offices in four cities amid escalating tensions with U.S. technology companies.

The government also is investigating Microsoft executives in China, including a vice president, according to a statement posted Tuesday on the State Administration for Industry & Commerce website. The regulator urged the company to cooperate after almost 100 SAIC staff inspected the offices Monday, copying contracts and financial statements.

China stepped up the pressure on U.S. companies after American prosecutors indicted five Chinese military officers in May for allegedly stealing corporate secrets. Microsoft, Google Inc. and Apple Inc. have since been criticized by state media for allegedly cooperating with a U.S. spying program. Qualcomm Inc. in November disclosed an investigation related to anti-monopoly law.

"They're playing a long game," said Duncan Clark, the Beijing-based chairman of BDA China, which advises technology companies. China wants to discourage U.S. security agencies from using American technology companies, while also promoting domestic competitors, he said.

Microsoft acknowledged the probe Monday in an e-mail and said it is "happy to answer" government questions.

SAIC investigation
Investigators descended on Microsoft offices in Beijing, Shanghai, Guangzhou and Chengdu, according to the statement. The SAIC was told in June 2013 that Microsoft's Windows operating system and Office software didn't fully disclose information and caused incompatibility issues. The statement didn't elaborate.

Redmond, Washington-based Microsoft, the world's largest software maker, said in May it's working with the government to evaluate Windows 8 after the software was excluded from a government purchasing order of energy-efficient computers. Part of the reason for the exclusion was concerns over internet safety, the state-run Xinhua News Agency reported, without citing anyone.

The U.S. and China have traded accusations over cyberspying on information-technology security for years.

In 2012, a congressional report said Huawei Technologies Co. and ZTE Corp., China's largest phone-equipment makers, provide opportunities for Chinese intelligence services to tamper with U.S. telecommunications networks for spying.

Huawei has been shut out from a series of U.S. deals amid the accusations.

Snowden revelations
Revelations last year by former contractor Edward Snowden of a National Security Agency spying program has further strained relations.

China said in May it will vet technology companies for potential national security breaches after the government threatened retaliation for the U.S. indictment of Chinese military officers.

The tensions come as Chinese companies boost their capabilities in areas previously dominated by U.S. businesses.

Inspur Group is building its server business to compete with IBM; Lenovo Group has become the world's biggest personal-computer maker; and Xiaomi Corp.'s smartphones attract the sort of devotion reminiscent of Apple product launches.

"The Chinese government has spent a lot of time and effort promoting and getting Chinese companies into the tech industry," said Jim McGregor, an analyst at Tirias Research. "The motivation is clear: They want Chinese companies to excel in China and overseas."

Google, Facebook
A spokesman from the State Internet Information Office, cited by Xinhua, said in May that "governments and enterprises of a few countries" are taking advantage of their monopoly status and technological edge to collect sensitive information.

Apple this month denied a report on China Central Television that software on its iPhones may result in a leak of state secrets. Last month, a commentary on the microblog of the People's Daily website said Apple, Microsoft, Google and Facebook Inc. cooperated in a secret U.S. program to monitor China.

Qualcomm said in November that China's National Development and Reform Commission began an investigation related to an anti-monopoly law.

The Chinese government has been stepping up corporate scrutiny as new leadership expands an anti-corruption drive among government officials and cracks down on business practices that it says lead to increases in consumer prices.

China is reviewing whether domestic banks' reliance on high-end servers from IBM compromise the nation's financial security, people familiar with the matter said in May. IBM said at the time it wasn't aware of any official policy recommending against the use of its servers by banks.

- Bloomberg News -

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