In the past five years, the relationship between Microsoft and China has become increasingly complex. According to corporate registration records, Microsoft has closed at least 15 branches and joint ventures in China during the past five years. Five sources disclosed to Reuters that the company is undergoing what they describe as a “gradual retreat.”
One insider told Reuters that Microsoft had considered a complete withdrawal from China in 2023, as some executives believed that the geopolitical risks the company faced did not justify the economic returns.
However, a Microsoft spokesperson also told Reuters that the company currently has no plans to withdraw.
According to a report by 247wallst, for Microsoft, this has been a five-year phased withdrawal in four different areas, each driven by different factors.
The first area mentioned is the closure of at least 15 branches and joint ventures. Wicresoft, the joint venture established by Microsoft in China in 2002, began reducing its business in China in April 2025, resulting in the loss of around 2,000 job positions. It appears that this company is also included in the aforementioned 15 closed enterprises.
The second area is manufacturing. Microsoft is relocating most of its Surface and Xbox hardware production as well as data center server manufacturing operations out of China, with the goal of ensuring that at least 80% of server-related materials are purchased overseas.
The third area is retail: In 2024, Microsoft closed all physical retail stores in mainland China and shifted to online sales and third-party partnership models.
The fourth area is workforce scale. Around June 2026, Microsoft cut around 200 to 400 Azure cloud business positions in China, marking the company’s third round of layoffs in two years. The affected employees resigned around July 6, 2026, and received severance pay equivalent to up to 7 months’ salary.
The five insiders told Reuters that the deteriorating relationship between the United States and China has impacted Microsoft’s business.
The pressures Microsoft faces in its Chinese operations stem from structural factors. Since 2017, Beijing has been guiding state buyers to procure domestic software. Reuters reviewed six government procurement guides from December 2023 to May 2026, with five of them not recommending Microsoft at all.
Paul Triolo from DGA-Albright Stonebridge Group told Reuters that not being recommended “does not mean the products are prohibited, but it subjects technology managers using such services to more stringent scrutiny, including additional security checks and approvals.”
Furthermore, with the U.S. imposing export controls on advanced chip manufacturing, the data security program launched by the Department of Justice in 2025, and competition from local firms in China like Kingsoft and Kimi Models, Microsoft’s challenges have become increasingly difficult. As of 2024, the Chinese market accounted for only 1.5% of Microsoft’s total global revenue.
According to three sources who spoke to Reuters, Microsoft’s ultimate decision to stay in China was because it had built a profitable business specializing in serving Chinese companies that require Western technology to conduct international operations.
Companies like ByteDance and Shein rely on the Azure cloud platform to manage data in compliance with overseas regulations.
Two of the sources also told Reuters that the company believes maintaining operations in China is crucial for accessing high-quality engineering talent locally. Microsoft had considered closing its research business in China, but ultimately decided to relocate some top researchers to other regions. Since the U.S. began tightening restrictions on AI-related exports, Microsoft Research Asia (previously Microsoft Research China) has established labs in Vancouver, Singapore, and Tokyo.
Microsoft’s experience reflects the diminishing development space for U.S. tech companies in China. Other major U.S. tech companies with significant operations in China are also reassessing their risk exposure. Apple plans to shift production of most iPhones sold in the U.S. to India by the end of 2026; and reports last month suggested that Tesla was considering spinning off its Chinese business, though Elon Musk denied the news.
In a recent survey by AmCham China, 52% of respondents indicated that China remains a top priority for their global investments, down from 62% in 2019.
Microsoft had once considered “leaving China” as unimaginable, but the company is now gradually shrinking its footprint in China, weighing which businesses remain viable to operate in the country.