While its efforts to become the Chinese state's tech vendor of choice did not pay off, Microsoft found a second wind with the private sector.
Firms like ByteDance and ultra-fast-fashion retailer Shein have key businesses serving Western customers and rely on Microsoft's Azure cloud to manage data in compliance with foreign regulations, two company sources said. Microsoft also offers Chinese enterprise clients exclusive access via Azure to Western AI models from providers like OpenAI, which do not serve China.
By the mid-2020s, helping Chinese firms go global had become Microsoft's largest China-linked business, three people said. Two of them stressed that sales remained small by the firm's global standards.
Analysts have additionally questioned the sustainability of that AI business, which relies on third-party suppliers like OpenAI. Chinese businesses also do not need Azure if they use domestic AI models like Kimi, which are increasingly competitive with Western alternatives while being far cheaper.
Microsoft has since the 1990s played a central role in building China's tech talent base.
Alongside hiring commercially focused engineers, it also established Microsoft Research China, which concentrates on advanced technologies. The lab's alumni include senior leaders at AI pioneers SenseTime and DeepSeek.
But the recent political pressures have affected Microsoft's ability to retain talent.
U.S. export controls on chips and AI models have restricted the access of Microsoft's China-based engineers to cutting-edge technology. The firm doesn't conduct research on quantum computing and other sensitive technologies in China, Microsoft president Brad Smith told U.S. lawmakers in 2023.
Microsoft considered shutting the lab down but ultimately decided to relocate some top talent, according to two people familiar with the matter. Since the U.S. began restricting AI exports, Microsoft Research China — now known as Microsoft Research Asia — has opened labs in Vancouver, Singapore and Tokyo.
The firm has, however, struggled to convince developers to leave China. It offered 1,000 top engineers relocation to the U.S. and three other Western countries in 2024, but only about a third accepted, the sources said.
Microsoft confirmed it offered transfer opportunities that year but declined to provide more details.
Many senior engineers instead left for Chinese universities and tech firms, where they can conduct top-level research while remaining close to family, both sources said.
Microsoft had previously warded off poaching efforts by domestic rivals. The firm had an attrition rate of roughly 17% in the mid-2010s, though Crozier said Microsoft reduced it to under 10% by growing new businesses, like servicing ByteDance, and offering staff global opportunities.
There is "up and down in terms of the number of people and maybe some of the things that were developed over there," he said. "But we never change one inch of the fact that we will bring technology into China… for China, for Chinese companies."
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