Microsoft CEO Steve Balmer said this week that though around 20% of the world’s computers will be bought in China this year, China will probably account for only 1% of Microsoft revenue.

This, Balmer says, is due to the extremely low level of Intellectual property protection in China, which he says means that Microsoft and other US companies “have a hard time getting paid for their work” in China.

Bloomberg Businessweek reports on an interview with Balmer, who says:

“There are two things that make a country interesting. One is it buys a lot of PCs, the other is they pay for the software that gets used on those PCs. In China, there is no software market to speak of.”

Despite 20 years of lobbying from overseas firms Intellectual Property protection in China remains minimal, whilst at the same time trade regulation has greatly increased, making it more complex for overseas companies to trade in China.

The lack of intellectual property protection in China impacts on other key US industries, such as the pharma and film industries and likely accounts for a good portion of the US trade deficit to China which was over $16 billion in March 2010 alone.

Software Piracy in China has nearly doubled in the past 4 years, and commentators remark that perhaps China would show more enthusiasm for strengthening their anti-piracy laws if they had a software manufacturing industry themselves.

Balmer, whilst not dismissing China as a market, sees more hope in other emerging markets, like India and Indonesia.

Though India has a far smaller economy than China, it offers more potential for Microsoft, Balmer says:

“India is not perfect but the intellectual property protection in India is far, far better than it would be in China,”

Will this stand from Microsoft move the Chinese government?  Probably not.

And sadly, though Microsoft may choose to scale back its engagement with China, there is little likelihood that the Chinese software piracy industry will scale back its involvement with Microsoft who are likely to remain a key target for Chinese software pirates, cannibalizing legitimate sales both in China and around the world.

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