Microsoft wins over China public sector

By Steve Malone

Posted on 26 Nov 2004 at 10:46

China is becoming increasingly alarmed that Microsoft is winning the lion's share of too many government contracts to supply software. Recently both the Beijing and the Tianjin Municipalities signed hefty contracts with Microsoft's local sales agents in apparent contravention of laws on government procurement which stipulates a 'buy Chinese first' policy.

The deals for Windows and Office software are seen as key victories in a country where piracy is widespread in the private sector but is forbidden in government offices. According to the Beijing Times the three-year deal to be signed today permits the local authority unlimited licences for Office and Windows.

According to the China View web site Microsoft Windows became the sole source of operating system software and productivity applications. Microsoft's local agent, the Beijing Centre Electronic Technology Company Ltd beat off bids from three other Chinese suppliers.

However, local suppliers are crying 'foul' as the Beijing deal is out of line with the Government Procurement Law that came into effect in January 2003. The law is designed to encourage the development of the nascent Chinese software industry by giving them preferential treatment in the award of government contracts.

The local suppliers are particularly concerned as there are a number of similar contracts in the pipeline at the moment. There are fears that the Beijing and Tianjin deals have not only blown a hole in the China-first policy but have set a precedent for others to follow

Much of the local development is around the Linux operating system. In 2001, the Chinese government, suspicious of allowing its software to becoming dependent on Microsoft operating systems backed the locally developed Red Flag Software Linux OS and application publisher via the Chinese Ministry of Information Industry. The company now has strategic relationships with IBM, HP, Oracle and Intel.

As such, relations between the Chinese authorities and Microsoft will not have been improved by Steve Ballmer's pronouncement at a recent asian government summit that Linux infringes 228 patents.

It's not only in software that China is failing to stem the tide. This week Dell Computer beat off local competition to sign a contract to supply 16,000 computers to Beijing schools.

The Chinese authorities are now said to be looking to strengthen the procurement law to divide bidders into `domestic`, `non-domestic` and 'preferred non-domestic` suppliers. A 'domestic' supplier will be considered where at least 50 per cent of the development took place in China. It will be interesting to see exactly where Microsoft is placed.