Microsoft faces off against nationalist fervor in China

BEIJING - High-level defections, nationalist pressure to overthrow an entrenched power - a treacherous political plot? Not exactly. It's Microsoft Corp. confronting the odd realities of China's computer software business.

Forget Microsoft's epic antitrust battle in the United States. One of the few foreign companies to dominate a major market in China, Microsoft faces a different sort of menace here: growing resistance to its power by Chinese officials, patriotic ex-managers and technology nationalists.

The threats underscore the stubborn obstacles to foreign competition in the vast, largely untapped market of 1.25 billion Chinese. Despite efforts in China to liberalize trade by lowering tariffs and allowing more foreign investment, suspicion of outside influence remains high, and the government is not averse to intervening in business markets against what it sees as risky foreign dominance.

In the instance of Microsoft, the government says it's backing an upstart rival to the company's Windows software program, which runs the vast majority of the world's personal computers. The fledgling software competitor - Linux - is now used in just a fraction of desktops in China and elsewhere.

Critics here cite concerns that Microsoft's zealous protection of the proprietary Windows blueprint could give it secret ''backdoor'' access to Chinese computer systems that use Windows, posing a national security risk. The Linux code is freely distributed over the Internet and is available to anyone to use.

''The move will break the monopoly of the Windows operating system in the Chinese market,'' said Chen Chong, a deputy minister of information industries who oversees the computer industry in China.

To be sure, the Redmond, Wash.-based software maker faces plenty of perils elsewhere. The U.S. Justice Department is pushing to break up the company following a federal judge's decision that Microsoft abused its monopoly in computer operating systems to squeeze out rivals in the United States.

China is hardly the only market challenged by small competitors like Linux. But rivals in China may have an added edge.

Among the most prominent contenders is Linux Red Flag Software. The Linux software maker got a boost in May when Microsoft's deputy manager for China and Hong Kong, Liu Bo, jumped ship to sign on as Linux Red Flag's chief operating officer and president.

Red Flag - patriotically named for China's crimson national standard - also is a play on Red Hat Software Inc., a U.S. maker of Linux software.

''To work for a foreign company is a job, but it's not a career,'' Liu said at a news conference. ''I feel I've returned home.''

Microsoft likely won't be unseated anytime soon as China's top supplier of computer operating software, in part because many widely used software applications run best or exclusively on Windows.

''Chinese look at Linux as a good tool, but it's not yet a major threat,'' said Bill Wang at China Research Corp., a private consultancy in Beijing. ''Everybody's still using Microsoft.''

Microsoft disputes its dominance is threatened. ''Microsoft has become an icon and like any icon it will be both admired and resented,'' said Michael Rawding, Microsoft's regional director for greater China.

Microsoft doesn't break out revenues by nation outside the United States. Analysts say its dominance in China may lag global totals - 87.5 percent of the world's desktop operating systems market and 94 percent of the office applications market last year, according to the research firm International Data Corp.

Most personal computers already come installed with Windows. But a growing number in China do not. And Linux's price - $7 compared with $242 for the latest Windows version - makes it popular in a country where annual incomes average $600 a year.

Linux is created by a global network of volunteer programmers who share improvements over the Internet under the supervision of Linux's creator, Linus Torvalds. Since only a small fraction of Chinese own personal computers, compared with half of American homes, China's potential market remains largely untapped, leaving plenty of opportunity for Linux-based systems.

Public scrutiny of Microsoft's role in China intensified after the publication of a harsh memoir by Wu Shihong, a former general manager for Microsoft's operation in China.

In ''Up Against the Wind,'' Wu accused her bosses of rejecting her efforts to help shape company management and business strategy in China, in effect relegating her to the role of saleswoman.

''The cleverest way of doing things is to let Chinese working for foreign-invested enterprises to manage the China business,'' wrote Wu, who has since joined a domestic electronics company.

Wu's complaints touched a nationalistic chord. Some reports in China's state-controlled media portrayed her as a patriotic David to Microsoft's Goliath.

Microsoft executives reacted tersely to Wu's book. ''The motivations behind that book are inherently suspect,'' said Rawding, Wu's former boss.

A big threat, to Chinese software developers as well as Microsoft, remains rampant piracy. The U.S.-based Business Software Alliance estimates that up to 96 percent of software used in China is stolen.

''The potential market is good, but there is a need for a good legal system to protect copyrights,'' said Wang. ''Microsoft is waiting for that good legal system to develop.''

Despite opposition to Microsoft's dominance, its success also has prompted envy among those who would like to see China produce a world-class software industry and an entrepreneur of chairman Bill Gates' stature.

In ''How to Bring Up a China Microsoft,'' author Zhang Qijin contends that Chinese firms still lack the necessary technology, capital, managerial expertise and talent pool for a world-class software industry.

''It will be a long time before China can produce a Bill Gates,'' mused the China Youth Daily.

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On the Net:

Microsoft Corp.: http://www.microsoft.com/china/english