Microsoft retreats in China, but AI helps it keep a window open

In 2010, Microsoft did not entertain the idea of leaving China, despite Google's subsequent exit due to concerns over censorship and cyberattacks. However, in recent years, Microsoft has pursued a strategy of retreat, with at least 15 of its branch offices and joint ventures in China shutting down. The company faced geopolitical risks and a diminishing economic return, according to five sources familiar with the matter.

Despite this, Microsoft remained in China due to its profitable business servicing Chinese companies such as ByteDance and to maintain access to China's world-class engineering talent. The company also cultivated a deep relationship with the Chinese government, which is among the deepest of any tech company. Microsoft has been engaging with the highest levels of the Chinese government since the early 1990s and has invested in startup incubators and complied with censorship requirements.

However, Windows 10 China Government Edition, a product specifically designed for the Chinese market, did not take off as hoped due to the government's strict procurement guidelines. While Microsoft's efforts to become the Chinese state's tech vendor of choice did not succeed, the company found success with private sector firms that rely on Microsoft's Azure cloud to manage data in compliance with foreign regulations.