Microsoft shut 15-plus China offices but stays for AI business, Reuters reports

Microsoft ↗ 0.52% has closed more than 15 branch offices and joint ventures in China over the past five years as part of a broad retreat from the country, according to a Reuters investigation published on Thursday based on corporate filings and five company sources.reuters+1

The company considered quitting the Chinese market entirely in 2023, with some executives concluding that the geopolitical risks far outweighed the economic returns — China accounted for just 1.5% of Microsoft's global revenue in 2024, according to the report.wincountry+1

Why Microsoft Stayed

Despite the pullback, Microsoft opted to remain because of a profitable niche: servicing Chinese companies with overseas operations. Firms like TikTok owner ByteDance and ultra-fast-fashion retailer Shein rely on Microsoft's Azure cloud to manage data in compliance with foreign regulations, Reuters reported. Microsoft also offers Chinese enterprise clients exclusive access to Western AI models from providers like OpenAI through Azure, which does not serve China directly.finance.biggo+1

By the mid-2020s, helping Chinese firms expand globally had become Microsoft's largest China-linked business, though sources stressed sales remained small by the company's global standards.wincountry

Government Market Lost

Microsoft's decades-long courtship of the Chinese government — dating to Bill Gates's first visit in 1994 — has largely failed to pay off. Reuters reviewed six Chinese government procurement guides published between December 2023 and May 2026; five did not recommend Microsoft products. Starting in 2017, Beijing introduced guidelines favoring "safe and reliable" domestic software, and no foreign operating system has been deemed compliant.reuters+1

U.S. export controls have further restricted what Microsoft can offer in China, limiting engineers' access to cutting-edge technology. The company offered 1,000 top engineers relocation to the U.S. and other Western countries in 2024, but only about a third accepted, with many opting instead for positions at Chinese universities and tech firms.wincountry+1

Broader Tech Decoupling

Microsoft's retreat mirrors a wider rethinking among U.S. firms. Apple ↘ 0.80% plans to manufacture in India most iPhones sold to Americans by the end of 2026, while confidence among American businesses in China has dropped — just 52% of respondents to the American Chamber of Commerce in China's latest survey ranked the country a top investment priority, down from 62% in 2019.wincountry

Alain Crozier, Microsoft's former China head, told Reuters: "Because of the geopolitics … some days it's a little bit harder, but we never had a crisis."reuters+1