Microsoft Leverages OpenAI in China Amid Tech Rivalry

Microsoft’s China AI Push

Microsoft is making significant inroads into China’s artificial intelligence market by selling OpenAI models and other AI services. This expansion occurs despite ongoing US-China rivalry in the AI sector, with ByteDance emerging as Microsoft’s largest AI customer in the region.

• ByteDance, a social media and AI powerhouse, reportedly spends over $1 billion annually on Microsoft’s AI and cloud services.
• Other major Chinese firms like Ant Group, Meituan, and Tencent also utilize Microsoft’s Azure cloud service for AI models.

Microsoft views its presence as crucial for understanding local innovations and serving multinational clients. In 2024, its China operations accounted for approximately 1.5% of its total revenue.

Growth Amidst Geopolitical Tension

The expansion has generated controversy, with some US tech executives and lawmakers raising concerns about intellectual property theft and potential harmful uses. Companies like Anthropic PBC and OpenAI generally refrain from selling their models in China.

However, Microsoft sets its own policies for selling OpenAI’s GPT models in China, excluding some third-party offerings like Anthropic’s. Internal reports indicate substantial growth:

• Azure’s AI revenue in China tripled in fiscal year 2025.
• Revenue surged 400% in the previous fiscal year.

While Chinese companies use these models, much of their expenditure supports expansion outside China, and they also develop their own AI models, such as ByteDance’s Doubao.

Safeguarding Intellectual Property

OpenAI has privately voiced concerns to Microsoft about the potential for Chinese companies to “distill” or copy its models. Microsoft employs automated monitoring to prevent customers from building directly competing products.

The company also adheres to local regulations by selling only to established businesses, not individual developers. However, preventing the use of OpenAI models for building proprietary AI, including synthetic data generation, remains challenging.

To operate in China, Microsoft partners with local providers and uses data centers near Beijing and Shanghai. Crucially, it hosts OpenAI models in facilities outside China, such as Singapore, to safeguard intellectual property.