Chinese regulator targets Microsoft

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Tim Culpan, Ian King and Dina Bass Beijing

CHINESE regulators have opened an anti-monopoly investigation into Microsoft, seizing computers and documents from offices in four cities on Sunday amid escalating tensions with US technology companies.

The government was also investigating Microsoft executives in China, including a vice-president, the State Administration for Industry & Commerce (SAIC) said in a statement posted on its website yesterday. The regulator urged the company to co-operate after almost 100 of its staff inspected the offices on Sunday, copying contracts and financial statements.

China has stepped up the pressure on US companies after American prosecutors charged five Chinese military officers in May with stealing corporate secrets. Microsoft, Google and Apple have since been criticised by state media for allegedly co-operating with a US spying programme, and Qualcomm disclosed an investigation related to anti-monopoly law in November last year.

“They’re playing a long game,” said Duncan Clark, the Beijing-based chairman of BDA China, which advises technology companies. China wanted to discourage US security agencies from using American technology companies, while also promoting domestic competitors, he said.

Microsoft acknowledged the probe on Sunday and said yesterday that it “complies with the laws and regulations of every market in which we operate around the world and we have industry leading monitoring and enforcement mechanisms in place to ensure this. Our business practices in China are designed to be compliant with Chinese law.”

Investigators descended on Microsoft offices in Beijing, Shanghai, Guangzhou and Chengdu, according to the company’s statement. The SAIC was told in June last year that Microsoft’s Windows operating system and Office software did not fully disclose information and caused incompatibility issues. The company did not elaborate.

Before the raids, Microsoft and the SAIC had been discussing the regulator’s concerns and the company considered the talks productive, a person familiar with the situation said.

The company was therefore surprised by the investigation, said the person, who asked not to be identified because the talks were private.

Microsoft, the world’s largest software maker, said in May it was 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 a concern over internet safety, the state-run Xinhua News Agency reported, without citing anyone.

The US and China have traded accusations over cyberspying on information technology security for years.

In 2012 a congressional report said Huawei Technologies and ZTE, China’s largest phone equipment makers, provided opportunities for Chinese intelligence services to tamper with US telecommunications networks for spying.

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

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

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

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

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

The Chinese government has been stepping up corporate scrutiny as its new leadership expands an anti-corruption drive among government officials. – Bloomberg


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