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 China's State Administration for Industry & Commerce (SAIC) was also
investigating a Microsoft vice president and senior managers, and
had made copies of the firm's financial statements and contracts,
the agency said on its website.
It said Microsoft, which has struggled to make inroads in China due
to rampant piracy, had not fully disclosed information about Windows
and its Office software suite.
Microsoft is one of the biggest U.S. companies to fall under the eye
of Chinese regulators as they ramp up their oversight in an apparent
attempt to protect local companies and customers.
The investigation comes as U.S.-China business relations have been
severely strained by wrangles over data privacy.
Investigators raided Microsoft offices in Beijing, Shanghai,
Guangzhou and Chengdu on Monday.
The SAIC said it had obtained documents, e-mails and other data from
Microsoft's computers and servers, adding that it could not complete
the investigation as Microsoft had said some of its key personnel
were not in China.
Microsoft has been suspected of violating China's anti-monopoly law
since June last year in relation to problems with compatibility,
bundling and document authentication, the statement said.
Microsoft said on Monday it had been visited by officials and that
the company was "happy to answer the government's questions", a
statement it repeated after the announcement from the regulator on
Tuesday.
The SAIC statement said the raids were prompted by reports from
other companies, without naming the companies.
Microsoft has already engaged a Chinese law firm to help with the
anti-monopoly case, said the law firm, declining to be identified or
to comment any further.
DETAILS MURKY
But mystery surrounds the probe, with industry experts and lawyers
questioning what, if any, violations Microsoft can have made in
China, where the size of its business is negligible.
It is still unclear how exactly Microsoft violated China's
anti-monopoly law, said Duncan Clark, chairman of Beijing-based tech
consultancy BDA.
"It's ironic they can be accused of a monopoly in a mostly pirated
operating system market, as they were criticized for ending support
to mostly non-paid versions of Windows XP," said Clark, referring to
Microsoft halting support for the 13-year-old operating system in
April.
Microsoft does have a wide range of operations in China, including
research and development and teams for products such as Windows,
Microsoft Office, servers, entertainment and hardware.
But its revenues for China, which Microsoft does not break out in
its earnings statements, are very low. The disappointing sales in a
market of 1.4 billion people have led to strained relations with
Microsoft's headquarters in Redmond, Washington, said a former
employee.
Former CEO Steve Ballmer reportedly told employees in 2011 that,
because of piracy, Microsoft earned less revenue in China than in
the Netherlands, even though computer sales matched those of the
United States.
Some lawyers, however, said there was an argument that Microsoft
enjoyed a monopoly in China, despite the fact that the vast majority
of copies of Windows and Microsoft Office are pirated.
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"Microsoft really has a dominant market position. People rely on it
very much and its market share is very high, so this would likely
lead to an abuse of its dominant market position," said Zhan Hao, a
Beijing-based managing partner at Anjie Law Firm.
"Alternatively, Microsoft could (through its market position)
restrict competition for other business and competitors," he said,
adding that Microsoft, if found guilty may see fines of 1-10 percent
of its China revenue.
China's anti-monopoly law does not say whether the 1-10 percent of
revenues that companies can be fined when in violation refers to
domestic sales or global.
TECH SECTOR TENSIONS
Qualcomm Inc, the world's biggest cellphone chip maker, is facing
penalties that may exceed $1 billion in another Chinese anti-trust
probe, following accusations of overcharging and abusing its market
position.
The U.S. Chamber of Commerce earlier this year urged Washington to
get tough with Beijing on its increasing use of its six-year-old
anti-competition rules, noting that "concerns among U.S. companies
are intensifying".
Revelations by former U.S. National Security Agency contractor
Edward Snowden have also caused friction, with Chinese state media
calling for "severe punishment" against tech firms they say have
helped the U.S government to steal secrets and monitor China.
Tensions increased in May when the U.S. Justice Department charged
five members of the Chinese military with hacking the systems of
U.S. companies to steal trade secrets.
The SAIC investigation into Microsoft could be read as a public
retaliation for the U.S. cyber espionage revelations and the Justice
Department indictments, said BDA's Clark.
The latest move by China's authorities caps a rocky period for
Microsoft in the country. Earlier this month, activists said
Microsoft's OneDrive cloud storage service was being disrupted in
China.
In May, central government offices were banned from installing
Windows 8, Microsoft's latest operating system, on new computers.
This ban appears not to have been lifted, as multiple procurement
notices since then have not allowed Windows 8.
Nevertheless, the company has pushed forward with plans to release
its Xbox One gaming console in China in September, forming
distribution ties with wireless carrier China Telecom Corp and
e-commerce company JD.com Inc.
(Reporting by Paul Carsten; Additional reporting by Beijing
Newsroom; Editing by Alex Richardson)
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