Microsoft, once convinced that leaving China was unthinkable, has shut at least 15 branch offices and joint ventures in the country over the past five years and is pursuing a strategy of reducing its exposure, according to corporate filings and five people familiar with the company’s operations.

The software giant considered leaving China altogether in 2023 after some executives concluded that the geopolitical risks of operating there were becoming too high relative to the economic returns, one of the people said.

Microsoft ultimately decided to remain in the market, however, after determining that it had built profitable businesses serving Chinese companies with global operations and that maintaining a presence would help it retain access to the country’s highly skilled engineering workforce.

The company said in 2024 that China accounted for just 1.5% of its global revenue.

Microsoft’s changing approach reflects the broader deterioration in relations between Washington and Beijing, which has placed growing pressure on US technology companies operating in China.

China has increasingly promoted the use of domestically developed software since 2017, arguing that local products offer greater security. At the same time, US export controls on advanced technology have restricted Microsoft’s ability to expand its artificial intelligence and cloud businesses in the country.

Other major US technology companies are also reassessing their exposure to China as geopolitical tensions intensify.

Apple is shifting production of most iPhones sold to American consumers to India by the end of 2026, while Tesla has faced reports about the future structure of its China operations, although Elon Musk has denied that the company is considering separating its Chinese business.

Microsoft’s engagement with China dates back to the early 1990s. Co-founder Bill Gates made his first visit to the country in 1994 and met then-President Jiang Zemin, who encouraged him to study Chinese history.

The company subsequently invested heavily in building relationships with Chinese authorities, including co-investing in startup incubators and complying with some government censorship requirements.

That approach contrasted sharply with Google’s decision in 2010 to scale back its operations in China over concerns about censorship and cyberattacks.

At the time, Gates and then-Microsoft chief executive Steve Ballmer suggested that Google was overreacting and indicated that Microsoft had no plans to follow its rival out of China.

But Beijing’s growing suspicion of Western technology and the worsening relationship between China and the US have since transformed the operating environment.

China’s largest companies are often state-owned or closely connected to the government, making Microsoft particularly vulnerable to changes in procurement and technology policies.

In an effort to strengthen its position, Microsoft developed Windows 10 China Government Edition. Its release was personally negotiated by chief executive Satya Nadella with Chinese finance ministry officials, according to a person familiar with the discussions.

The product was adopted by several government agencies but failed to gain the traction Microsoft had hoped for, according to Alain Crozier, who led the company’s China operations until 2021.

China also introduced new procurement guidelines around the same period, establishing a framework for purchasing what it described as “safe and reliable” services.

Microsoft said no foreign operating system, including Windows, was considered compliant with the requirements.

A review by Reuters of six Chinese government computer-system procurement guides published between December 2023 and May 2026 found that five did not recommend Microsoft products. The sixth included Windows 10 China Government Edition but said its use was subject to additional management requirements.

Although Microsoft struggled to become a preferred technology supplier to the Chinese government, it found new opportunities among private companies with significant international operations.

Companies including ByteDance, the owner of TikTok, and fashion retailer Shein rely on Microsoft’s Azure cloud services to manage data and support their overseas businesses, according to company sources.

Microsoft also provides some Chinese enterprise customers with access through Azure to Western artificial intelligence models from companies such as OpenAI, whose services are not directly available in China.

By the mid-2020s, helping Chinese companies expand internationally had become Microsoft’s largest China-linked business, according to three people familiar with the matter, although two of them said the revenues remained small by Microsoft’s global standards.

The long-term prospects of the business are uncertain, however. Chinese companies increasingly have access to domestic AI models that are becoming more competitive with Western alternatives while costing significantly less.

Microsoft’s China operations have also been affected by restrictions on advanced chips and artificial intelligence technology imposed by Washington.

Microsoft has played a major role in developing China’s technology talent since the 1990s, particularly through Microsoft Research China, now known as Microsoft Research Asia.

The research centre has produced alumni who went on to senior positions at Chinese artificial intelligence companies, including SenseTime and DeepSeek.

But US restrictions on advanced technology have complicated the company’s ability to maintain cutting-edge research operations in China.

Microsoft considered closing the research laboratory but instead moved some senior researchers to facilities outside the country, according to two people familiar with the matter.

The research division has since established laboratories in Vancouver, Singapore and Tokyo.

Microsoft also offered about 1,000 leading China-based engineers the opportunity to relocate to the US and three other Western countries in 2024. Only about one-third accepted, according to the sources.

Many senior engineers instead moved to Chinese universities and technology companies, where they could continue advanced research while remaining close to their families.

Despite those challenges, Microsoft has maintained a long-standing commitment to its China operations.

Crozier said the company’s relationship with the Chinese government remained among the deepest of any major technology company.

“Because of the geopolitics … some days it’s a little bit harder, but we never had a crisis,” he said.

A Microsoft spokesperson declined to comment on the company’s internal deliberations over its future in China but said it remained committed to the market and operated within the same regulatory environment as other international suppliers.

The company said the state of its China business reflected market competition, regulatory requirements and technological trends.

Despite shrinking its physical footprint and reassessing its strategy, Microsoft appears determined to retain a foothold in China — balancing geopolitical risks against access to customers, talent and a market that remains strategically important to the technology industry.

Boluwatife Enome 

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