Agreement Funds Chinese Software Development

Microsoft will work with the government of China to foster software development, education, research, and training in the world’s most populous country. A memorandum of understanding (MOU) commits Microsoft to contribute US$750 million, which will be disbursed by a joint Microsoft-Chinese government committee. The unusual investment reflects the difficulties of investing in China, but could help Microsoft build bridges with the Chinese government and deal with threats such as the growing use of open source software in China.

Terms of Deal Hazy

The deal is unusual in that the Chinese government has made no public commitments in return for the funds. However, government software purchases or giving Microsoft opportunities to purchase a stake in promising Chinese companies have not been ruled out.

The Chinese government has said that the powerful State Development and Planning Commission of the People’s Republic of China (SDPC) will “recommend the companies Microsoft will work with,” which could imply that the funds will be used for joint ventures (of which Microsoft already has two in China) with Chinese companies. Microsoft CEO Steve Ballmer said the investment will, among other things, “further eGovernment initiatives.” Specific recipients of the money include universities, business parks oriented toward software development (of which China has 11), and research organizations. Microsoft will also license some technology developed at its Beijing research laboratory to Chinese organizations.