Microsoft's Troubles In China Continue With Government Investigation

Microsoft’s relationship with China, uneasy at the best of times, may have suddenly grown worse: The South China Morning Post of Hong Kong reported that officials from the State Administration for Industry and Commerce (a rough Chinese equivalent of the U.S. Securities and Exchange Commission) visited Microsoft offices in four cities on Monday, launching an official investigation of the Redmond, Washington-based company’s operations in China.

Microsoft (NASDAQ:MSFT) has acknowledged the visits -- which occurred at offices in Beijing, Shanghai, Guangzhou and Chengdu -- but has not elaborated further.

Multinationals have long endured difficult conditions in China, where government corruption and a capricious justice system heighten business risks. But the investigation into Microsoft is only the latest sign that the business climate in China has recently grown worse. GlaxoSmithKline (LON:GSK), a British pharmaceutical giant, is embroiled in a bribery scandal, while the Chinese government has accused Starbucks (NASDAQ:SBUX) of price gouging.

But Microsoft’s troubles with Beijing have been particularly acute. Despite the ubiquity of Windows-powered computers in the country, Microsoft has long complained that software piracy robs it of earnings; Steve Ballmer, the company’s former CEO, famously complained that in 2011 Microsoft earned as much revenue in tiny Holland as in China.

In May of this year, Beijing suddenly announced that it will prohibit use of Windows 8, Microsoft’s most recent computer operating system, in government computers, in protest of Microsoft’s decision to curtail tech support for Windows XP, an older system used widely throughout the country. The Chinese government is attempting to develop an alternative to Windows, based on Linux, in order to reduce reliance on foreign imports.

Despite these headaches, Microsoft remains engaged in the Chinese market. The Wall Street Journal reported Monday that Tencent Holdings Ltd. will offer early advanced sales of Microsoft’s XBox video game console in China through JD.com Inc. The XBox release marks the first time a gaming console hits the Chinese market since a 2001 ban.