Of every 100 Microsoft programs used in China, 94 are pirate copies which make no money for the company. Nonetheless the software giant insists it is optimistic about sales growth in the world's most populous nation.
"As one of the industry's software vendors, we suffer heavily from piracy in this country," said Jack Gao, president of Microsoft China.
He admitted rampant piracy was one of the reasons the Chinese version of the Office 2000 operating system was discontinued on Oct. 8, to be replaced on the shelves with Microsoft's latest product, Office XP.
"But we remain optimistic," he said.
According to a recently released report by the Business Software Alliance, which gathers top software makers and researchers, China's piracy rate last year was second only to Vietnam's 97 percent tally.
The independently-conducted report valued the losses last year in China due to software piracy at US$1.12 billion, a vast increase on US$645 million in 1999.
Despite the dismal numbers, Gao said that the situation was turning around as China's government was becoming increasingly aware of the need to protect intellectual property, implement new laws and step up enforcement.
"There has been an incredible recognition and support by government leaders on protecting the value of intangible assets, but it is a huge challenge and will take time," he said.
The government was formulating "computer software protection regulations" which should be implemented nationwide within 12 months, while last year an official order obliged government institutions and enterprises to allocate budgets for legitimate software purchases, he said.
Tourists in China have long enjoyed buying cheap pirated software as well as digital video and music discs for a fraction of what they would pay for copyrighted versions at home.
Industry sources in China consistently suspect the government has turned a blind eye to piracy in an effort to maintain strong growth in sales of personal computers and video disc players in its drive to stimulate consumer spending.
Gao expects computer sales in China will reach 10 million units this year, but he estimated that for every dollar Chinese consumers spent on computer hardware, they will fork out just US$0.10 on software, far below the 60/40 standard in the developed world.
However, Microsoft's bullishness on the Chinese market is reflected in the growth of Microsoft China, one of the parent company's largest and most comprehensive subsidiaries, Gao said.
The company has a new building in north Beijing's own "Silicon Valley" and employs 900 employees in a facility including a complete research and development center aimed at customizing Microsoft products to the Chinese market, as well as a large marketing and sales force.
"From the revenue point of view we are still on the smaller side," Gao said, saying mainland China was still "way smaller" as a market than Taiwan and Hong Kong.
Sales revenues last year grew by 250 percent, but from a very small base, he said, refusing to give details.
"The size of our revenue is a little bit larger than Microsoft Argentina, where annually there are about a half a million personal computers shipped," he said.
Much of Microsoft sales revenues come in the form of licensed sales of Microsoft's Windows operating systems to China's computer vendors, who bundle it with their new computer sales.
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