Bottom line: Microsoft's (NASDAQ:MSFT) development of a special Windows 10 China government edition reflects efforts western tech firms are making to comply with Beijing's year-old national security law.
US software giant Microsoft is sending the latest sign that foreign tech firms are bending to Beijing's national security concerns, with word that it has created a special version of Windows 10 just for the Chinese government. This kind of a move looks relatively bold, and sharply contrasts with Apple's (NASDAQ:AAPL) recent refusal to assist the US government in its drive to unlock a terrorist's iPhone.
But Microsoft's move isn't completely unprecedented either, since the software giant also made a similar move more than a decade ago when it released the source code for Windows to Beijing. Since then, Microsoft has continued to share its Windows source code with Beijing for newer versions of the operating system, reflecting the importance the company places on the huge China market.
Microsoft is hardly the only foreign tech company to bend to Beijing's growing obsession with national security, which culminated with its roll-out of a new, wide-ranging law last year. Foreign tech giants complained that the law was overly invasive by forcing them to release sensitive product information to national security officials, and also by pressuring them to form joint ventures with local partners for government-related projects.
Microsoft formed its own joint venture as part of that campaign, announcing a tie-up with local electronics and information technology company CETC last fall to address Beijing's national security concerns. The company has had a stormy relationship with other Chinese government agencies over the last two years, being probed in separate cases for tax evasion and anti-competitive behavior. (previous post)
Against all that backdrop, let's look at the latest reports that say Microsoft has prepared the special edition of Windows 10 just for Beijing, and that the edition will soon be rolled out for use in government agencies and at major state-run companies. (Chinese article) The reports come from an interview with Microsoft Greater China chief Ralph Haupter, who says Microsoft teamed up with CETC on the project. That means the partners were able to develop this new Windows edition in a relatively short time.
In all of these cases, it's quite clear that the Chinese partner is probably bringing very little to the partnership in terms of technology. Instead, these Chinese companies are acting more as a buffer between Beijing and the foreigners. As major and probably majority stakeholders in these new joint ventures, such local partners would also be far more likely to bend to Beijing's requests for sensitive information. Microsoft's case is a good example, since CETC owns 51 percent of the venture and thus gets the final say on any major decisions.
Haputer said the special Windows 10 edition adds features that make it easier to manage, and also more secure, while also eliminating some features targeted at consumers. I suspect that one of Microsoft's biggest modifications involved simply adding some back-doors that also will give national security officials better access to the system.
Microsoft was just the latest company to form a local joint venture to placate Beijing. Others who have formed similar recent tie-ups include the likes of HP Inc. (NYSE:HPQ), IBM (NYSE:IBM), Cisco (NASDAQ:CSCO) and VMware (NYSE:VMW), just to name a few. (previous post) We haven't really heard what the others have done in terms of similar product modifications, but I suspect many may also be adding back-doors and other features that give Beijing better access to monitor networks built with their products.
These companies really didn't have much choice in the matter and were told to form alliances and modify their products or risk losing work from Chinese government agencies' big state-owned enterprises. At the end of the day, I have to commend Microsoft for at least being open in talking about what it's doing to placate Beijing, even if the move is quite unprecedented and could give China access to sensitive product information. All of these companies have made a choice that the Chinese market is too big to risk losing, and hopefully they won't ultimately regret that decision.