Microsoft to China: So long, it’s been good to know ya….

Once upon a time Microsoft was bullish on China. 

Back in early 2010, when Steve Ballmer was CEO and Bill Gates was Chairman, Google was threatening to pull out of China because of Chinese censorship and because of what the company called Chinese government-sponsored cyberattacks. Google wasn’t alone. Other tech companies — as well as politicians like then-House Speaker Nancy Pelosi — were saying the same things.

Microsoft, though, was having none of it. 

Ballmer told Reuters back then, “We’re attacked every day from all parts of the world and I think everybody else is, too. We didn’t see anything out of the ordinary.”

Reuters asked Ballmer whether the company would pull out of China, and Ballmer bluntly said, “No,” adding, “I don’t understand how that helps anything. I don’t understand how that helps us and I don’t understand how that helps China.”

There was, of course, an ulterior motive to Ballmer’s defense of its China relationship. Google’s search engine was dominant across the world, and Microsoft’s Bing couldn’t catch up. Ballmer hoped Bing would make inroads into the Chinese market and eventually overtake Google worldwide.

That didn’t happen, of course. It likely never will. 

Today, though, Microsoft has all but abandoned China. And that doesn’t look like it will change. Here’s why.

Microsoft hangs up the ‘Closing’ sign

First, let’s look at the ways Microsoft’s relationship with China has withered.

In the past five years, Microsoft has closed at least 15 offices and joint ventures with China, Reuters reports. The story claims the actions are part of a careful plan, adding, “Microsoft is pursuing what five company sources described as a strategy of retreat” from China.

24/7 Wall St. reports that among those now-closed joint ventures is Wicresoft, Microsoft’s first such venture in China. An estimated 2,000 jobs were lost in China as a result of the closing.

Microsoft is also moving much of its manufacturing out of the country. Most of its Surface, Xbox and hardware production will leave China, as will server-related manufacturing for data centers.

There are other signs of a retreat. In 2024, Microsoft closed all of its authorized Chinese retail stores and began selling its products via third-party and online partners. It’s also been reducing its Chinese headcount. According to 24/7 Wall St., “Around June 2026, Microsoft cut an estimated 200 to 400 Azure cloud jobs in China, its third downsizing round in two years.”

How did Microsoft get here?

This didn’t happen all at once. It’s been a long, gradual process, the result of geopolitical tensions between the US and China and the worsening business climate between the two countries.

Microsoft began engaging with China more than 30 years ago, in 1994 when Gates first visited the country. After that the company “made various efforts to build a relationship with the ruling Communist Party,” Reuters reported, including co-investments in startup incubators. 

Over time, Microsoft moved some manufacturing to China, opened Microsoft stores there, and pushed the Chinese government to buy Windows and other software. In 2014, Microsoft launched LinkedIn in China, agreeing to comply with the government’s censorship demands even as other companies like Google refused. 

But the relationship deteriorated in the mid-2010s as China soured on its relationships with US and western tech firms, believing they were spying on the Chinese government. To assuage Chinese fears, Microsoft built a version of Windows specifically for the Chinese government, called Windows 10 China ​Government Edition. (According to Reuters, current Microsoft CEO Satya Nadella personally handled the negotiations with the Chinese government for the OS.)

It flopped. Only a handful of Chinese government agencies purchased it, and in 2017 China established government procurement guidelines that largely froze it out.

Things went downhill from there. In 2021, Microsoft shuttered LinkedIn in China when China increased its censorship demands.

The current and future state of the relationship

So where are we now? Despite that “strategy of retreat” described by Reuters, Microsoft officially denies it’s backing away. But the company also said that as of 2024, only 1.5% of its revenue comes from China. That figure is probably even lower now. 

There’s one current bright spot in Microsoft’s Chinese relationship — the use of Azure to provide Chinese companies with AI services and infrastructure, notably TikTok owner ByteDance and fashion retailer Shein. 

But even that is at risk, because of increasingly powerful AI models in China like Kimi, which are less expensive than Microsoft’s and other US technologies.

What does this mean for the future? Expect Microsoft to gradually close more of its Chinese operations. Azure will likely be replaced by Chinese home-grown tech. Microsoft’s already shrunken income from China will shrink even more.

And that’s a good thing. Having a big presence in China — or even a small one — means making a deal with the devil by kowtowing to Chinese censors. It’s time Microsoft made the break-up complete.