In China, A Different Kind Of 'Trust' Problem

Last January, when Chinese officials began to enforce a rule to make software companies register encryption products, the information-technology industry worried. But nobody worried more than Microsoft, which was gearing up to launch Windows 2000 in China. The Chinese regulations suggested that Win2K might be banned. But just days before the March 20 launch, China suddenly announced it would soften the rules. Microsoft got the green light.

China's relationship with Microsoft is emblematic of its relationship with America--sweet and sour. Mainland authorities know they need Microsoft if they hope to thrive in the information age. Yet they fear becoming overly dependent on the company. So the government has urged the development of alternatives, like Red Flag Linux. Unlike Windows, Linux is an open-source operating system--which means its programming isn't hidden. China (and developers around the world) like that.

For the moment, China's market still smiles on Gates. Over 90 percent of individual users run Windows. But since many can't afford the software, high penetration is possible only because many Chinese buy pirated software. "The biggest competition for us and any other software company in China is piracy," says Michael Rawding, Microsoft's regional director for greater China. "It dwarfs any other competitor." Anti-Microsoft sentiment even holds the company responsible for the piracy of its own products. Newspaper commentator Fang Xingdong claims that the combined retail price of Windows 98 and Office 97 is twice the per capita income in China.

That type of thinking is causing more headaches for Microsoft. Rumors of Trojan horses embedded in Windows software are rampant in newspapers and online bulletin boards. These code fragments have hidden functions; some believe they make it possible to access private information. "Backdoors in Windows 95 and Windows 98... send back user's information to a huge database in Microsoft headquarters," claimed the state-run Workers' Daily newspaper recently. (Microsoft denies the charge.)

In the end, though, such sentiments don't seem to outweigh China's fundamental need for the latest technology. With the U.S. set to vote on trade relations with China in late May--a measure important to China's entry into the World Trade Organization--there's too much to lose, for China and Microsoft. According to Rawding, the Chinese government has shown "a huge amount of interest in Windows 2000. It works, people like it and that's why they're buying it." China, it seems, wants to open up without relinquishing control--a tough act to follow. Microsoft, more than anyone, ought to know.