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Microsoft’s China woes increase

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A visitor walks past a Microsoft booth at a computer software expo in Beijing, June 2, 2010. (REUTERS/Stringer)

China took its investigation of "alleged monopoly actions" by Microsoft to a new level this week, raiding four of the company's offices and carrying away internal documents and computers.

China's State Administration for Industry and Commerce -- the state anti-trust regulator that enforces business laws -- said in a statement on its website that the raids were launched after other companies in China complained about Microsoft, though none were named.

The focus of the investigation is believed to be whether Microsoft’s Windows operating system and Office Business Suite have monopoly positions in China.

Microsoft could be fined up to 10 percent of its revenue if found guilty, according to a Reuters report, though it isn't clear whether this would apply to Chinese or global sales.

In response, Microsoft said it will cooperate with the investigation and in an emailed statement to Reuters it said, "Our business practices in China are designed to be compliant with Chinese law.”

The state anti-trust regulator has targeted other American companies, including chipmaker Qualcomm, for alleged use of monopoly positions to set China licensing fees.

There have been growing concerns that China has decided to use anti-monopoly laws to stifle international companies and boost domestic competitors.

The U.S. Chamber of Commerce sent a letter to federal officials earlier this year spelling out exactly what it thinks is behind China’s recent actions.

"The Chinese government has seized on using the [antimonopoly law] to promote Chinese producer welfare and to advance industrial policies that nurture domestic enterprises," the Chamber of Commerce wrote.

Microsoft does, however, appear to have a dominant position in China's market stemming from its wide-spread use of products by companies and individual consumers.

Ironically, though, Microsoft's marketplace dominance also can be attributed to rampant piracy, particularly of its old Windows XP operating system, which the company no longer supports.

Microsoft executives, who have described operating in China as “challenging,” say piracy has cut into the profits many expected when it entered the world’s largest technology growth market.

The business environment in China has since become even more difficult for Microsoft.

Earlier this year China said it would ban government use of Windows 8, Microsoft's latest operating system.

It’s not clear why the ban was introduced, but concerns have been raised in China's media that Windows 8 could have a “backdoor” that U.S. spy agencies could exploit.

Chinese companies now are reportedly working on a new Linux-based operating system they hope will look and feel like a Windows operating system -- and, if successful, could take over the Chinese market.

The state controlled China Daily newspaper, meanwhile, quotes analysts as saying the actions against Microsoft and Qualcomm underline the concern in China of a dependence on U.S. technology.

Microsoft and other U.S. companies also appear to be caught up in a tense standoff between China and the U.S. involving data protection and spying.

Alvin Kwock, an analyst with J.P. Morgan, told the Wall Street Journal that "there's a digital Cold War going on between the U.S. and China."

The revelations by former U.S. National Security Agency contractor Edward Snowden have got great publicity in China with state media pushing for "severe punishment" of U.S. tech firms they say have helped the U.S government spy on China.

Tensions were raised even further between the two sides in May when the U.S. Justice Department charged five members of the Chinese military with hacking the systems of U.S. companies.