san francisco – Despite the escalating conflict between the US and China over artificial intelligence, Microsoft has built a large business selling AI models to Chinese companies.
social media and AI major ByteDance The company has been Microsoft’s biggest AI customer in recent years, primarily using OpenAI models, according to people familiar with the matter.
The company plans to spend more than US$1 billion (S$1.3 billion) a year on Microsoft’s AI and cloud services, some of the people said.
Other Chinese tech companies, including Ant Group, Meituan and Tencent Holdings, are also spending heavily on AI models through Microsoft’s Azure cloud service, people familiar with the industry said.
Microsoft believes it would be beneficial to have a presence in China to keep up with local innovation and serve multinational customers, according to people familiar with the company’s thinking.
In Congressional testimony, President Brad Smith said the company’s China business remains relatively small, expected to account for only about 1.5% of total revenue in 2024.
However, the company’s business in China has been controversial in some quarters. U.S. tech executives and lawmakers say China’s AI push poses a potential existential threat to U.S. industry.
Anthropic and OpenAI do not sell their models to Chinese companies, citing concerns about intellectual property theft or harmful use.
Microsoft and OpenAI declined to comment.
Microsoft has not expressed similar concerns behind the scenes. During an internal sales meeting in July 2025, then-Chief Commercial Officer Judson Althoff touted Microsoft’s rapid growth in AI in China, according to records reviewed by Bloomberg.
“The best AI solutions in the world are being built on the West Coast of the United States and the East Coast of China,” Althoff said. “It’s Microsoft that brings these two places together, which is really great.”
Althoff told employees that Azure’s AI revenue is growing faster in China than any other sales region, nearly tripling in the fiscal year ending June 2025, surging 400%. in 2024.
Due to its unique partnership with OpenAI, Microsoft has set its own policies regarding the sale of models like the GPT series in China. We also offer a variety of other AI models, with a few exceptions like Anthropic. Microsoft sells them to customers for a variety of uses, from software development to customer service automation.
ByteDance, Meituan, and Tencent did not respond to requests for comment, and it is unclear how they are using the Azure-purchased models. Much of the spending is going to support expansion outside China, according to people familiar with the company’s business.
All Chinese companies named in this article train their own AI models. For example, ByteDance offers an AI chatbot called Doubao that is widely used in China. A Microsoft team based in Asia will manage ByteDance as a customer, according to people familiar with the deal.
An Ant Group spokesperson said the company independently develops its own AI models and its core product does not rely on external models.
OpenAI has at times privately complained to Microsoft for not doing enough to prevent Chinese companies from copying its models, a process known as “distillation,” according to people familiar with the discussions. It’s unclear what policy changes OpenAI is seeking from Microsoft.
Microsoft employs automated monitoring to prevent customers from using AI models to build competing products. In China, the company only sells AI models to established companies, not individual developers, according to local regulations, according to people familiar with the matter.
Still, Chinese customers are not subject to increased scrutiny by Microsoft regarding its use of AI models, according to people familiar with the process. Furthermore, it is not possible to completely prevent companies from using OpenAI models to build their own models, including generating synthetic data for training purposes.
To sell products in China, Microsoft must partner with local providers. The company operates multiple data center regions domestically near Beijing and Shanghai.
However, under the agreement with OpenAI, Microsoft does not host the models on server farms in China due to the risk of intellectual property theft, according to people familiar with the deal. Instead, customers must access models over the Internet from facilities in other countries, such as Singapore. bloomberg
