Microsoft's Chinese ambitions have been cast into doubt after arch rival Google threw down the gauntlet to Beijing over freedom of speech on the internet.
In a direct challenge to the Chinese government, Google has threatened to pull out of the country unless it's allowed to offer 'unfiltered' internet searches to web users.
The moves follow a spate of 'highly sophisticated' hacking attacks on Google and twenty other foreign companies operating in China. The Chinese authorities have also significantly tightened internet censorship over recent times.
The threat marks a dramatic U-turn for Google, which was heavily criticised when it launched its Chinese service in 2006.
The price of entry was a controversial agreement to block websites banned by Beijing in an apparent breach of the search giant's 'don't be evil' corporate mantra.
With Google now making a belated bid for the high moral ground, the spotlight falls on rival US technology groups with ambitions to grab a slice of China's booming internet market.
Microsoft recently launched a Chinese version of its muchhyped Bing search engine and views the market as a big potential money spinner.
It has invested heavily in a network of research centres in the world's most populous nation, where sales of the Windows operating system stretch into the tens of millions annually.
Yahoo!, meanwhile, is also hoping to make inroads into China. So far the group has shown little stomach for a fight with Beijing. In 2004 it handed over Yahoo! emails to the Chinese authorities which were used to imprison political dissident Shi Tao.
The cost of withdrawing from China would be high, even for a company as deeppocketed as Google.
The search giant has built up a 35% share of the nation's online advertising market, which soared to £620m in 2009.
As the economic bounce gathers force and more Chinese go online, internet ad spending is expected to grow exponentially over the coming years.
It is understood that Google has become frustrated at Beijing's increasingly draconian steps to shackle webs users over the past year.
Its YouTube video sharing site has been inaccessible in China since March, as have social networking sites such as Facebook and Twitter.
The final straw came when Google unearthed numerous cyber attacks on email services, including attempts to break into the accounts of human rights activists in China, Europe and the US.
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