On June 18, Microsoft China AI business is growing fast as ByteDance, Ant Group, Meituan, and Tencent use its cloud services to access advanced models, but the same growth could draw sharper US scrutiny over security, competition, regulation, and geopolitical risk worldwide today, according to Bloomberg.
Microsoft has built a profitable AI channel in China by selling access to advanced models through Azure, with ByteDance becoming its largest AI customer recently. People familiar with the matter said the TikTok owner has spent more than $1 billion a year on Microsoft AI and cloud services, mainly using OpenAI’s models.
Other key Chinese companies, including Ant Group, Meituan, and Tencent, are also spending heavily on Azure to deploy AI models for products and overseas business expansion. For Microsoft, this is a cloud revenue story. For Washington, it is a national security question.
Cloud Growth Meets Political Pressure
Microsoft China AI business remains small beside its global empire. Company president Brad Smith has said China holds only about 1.5% of Microsoft’s total revenue.
Yet the Microsoft AI model revenue through Azure in China has been growing faster than in other markets, tripling in the fiscal year ending June 2025 after growing 400% the year before.
That growth explains why Microsoft sees value in staying close to Chinese innovation. The company believes a China presence helps it serve multinational clients and understand local competition.
With its unique partnership with OpenAI China, Microsoft has also built its own policy for selling GPT-series models in China.
While other US AI companies, including OpenAI and Anthropic, avoid selling directly to Chinese innovation entities.
Most of the Chinese spending is not aimed only at the domestic market. ByteDance, Ant Group, Meituan, and Tencent are using AI and cloud tools to support global products, customer service automation, software development, and international expansion. Microsoft China AI business in Asia team manages ByteDance as one of its largest customer relationships.
Still, the political cost is rising.
A spokesperson for the House Select Committee on China told The Post that “Microsoft should seriously reconsider the wisdom of helping China’s AI technology efforts.”
The same concern now surrounds Microsoft’s role in the Shenzhen Global Expansion Center, a project launched with Eclicktech and support from local governments.
Microsoft China AI business described that center as limited in scope.
“We do not operate the center directly and it does not conduct AI research, develop technology, or receive government funding,” a company spokesperson said.
Yet critics argue that helping Chinese AI startups expand globally still supports a wider Beijing goal, pushing high-tech Chinese companies into overseas markets.
The Model Access Dilemma
To meet Chinese rules, Microsoft China AI business relies on local partners and operates data center regions near Beijing and Shanghai. But to protect intellectual property, it keeps model operations outside China, with customers accessing models online from external servers such as Singapore. This structure helps Microsoft reduce direct exposure, but it does not remove the bigger concern.
The fear in Washington is not only where the model runs, but what Chinese companies can learn from it. OpenAI China has raised concerns with Microsoft about Chinese customers using indirect methods such as distillation to build competing models.
Microsoft uses automated monitoring systems to limit customers from developing rivals with its products, but sources said it does not apply stricter monitoring to Chinese companies than to customers elsewhere.
Ant Group has pushed back on the idea that it depends on foreign AI. The company said it develops its own AI models and does not rely on external models for its core products. ByteDance also has its own AI development operations. That makes Microsoft’s role complicated, it’s not simply giving Chinese companies AI capability but adding advanced US models to companies that already have major research strength.
The global competition is also moving beyond Chinese innovation and the US one.
Microsoft China AI business itself has warned that American AI companies are being outpaced by Chinese rivals in markets outside the West, where low-cost open models are spreading fast.
Smith told the Financial Times that Chinese models benefit from government subsidization, allowing companies to compete aggressively on price.
DeepSeek’s R1 model has accelerated AI adoption in emerging markets because it is accessible and cheap. Microsoft research written by the FT estimated DeepSeek has 18% market share in Ethiopia and 17% in Zimbabwe, with even larger shares where US technology is restricted.
This shows the wider risk for Microsoft; Chinese innovation is both a customer and a competitor.
In the short term, Microsoft AI sales in China can strengthen Azure revenue and help Chinese companies expand abroad.
In the long term, the same business may intensify US questions over whether advanced American models are helping a rival ecosystem grow faster, cheaper, and harder to control.
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