MICROSOFT chairman Bill Gates arrived in Beijing last night - his first time in the Chinese capital - on a relationship-building visit aimed at easing long-running tensions between Microsoft and key government officials. For Mr Gates - the personal computer industry's most influential player - China has so far proved at least as frustrating as it is potentially lucrative for Microsoft. On the one hand, frustration stems from the on-going battle against blatant mainland software piracy. Of more immediate concern, though, Microsoft appears to have blundered into a political skirmish with powerful sections of the Chinese leadership that is effectively blocking its plans for market expansion. The piracy issue is clearly an important one for Microsoft and would be expected to be an important agenda item in some of Mr Gates' meetings with government officials. But the soured relations said to exist between Microsoft officials and those of the powerful Ministry of Electronic Industries pose a more serious threat to Mr Gates' immediate China plans, and could derail some ambitions entirely. The PC market in China is small, indeed, but it is growing at a fantastic rate. For Microsoft to establish the kind of dominant market position it enjoys on much of the rest of the planet, industry watchers say it will first have to negotiate a path through the current bun fight with MEI. The dispute relates to the release of a mainland Chinese version of Microsoft's popular Windows 3.1 operating software, known as P-Win. Microsoft's China-based employees and other PC market watchers alleged that MEI is deliberately impeding the market progress of P-Win, apparently uneasy at the prospect of Microsoft enjoying anything like the dominance it has on other world markets. The ministry is said to have taken a protectionist position amid concern that the mainland's fledgling PC software industry would be seriously harmed by the presence of a dominant player like Microsoft. Clearly, there are also issues on the control technical standards that the Chinese leadership is uncomfortable about. It simply does not like the idea of an industry with de facto technical standards that are designed and set by a foreign corporation - Microsoft or otherwise. Microsoft's Greater China office said Mr Gates' presence in China today and tomorrow is not connected with the present dispute with MEI. The visit had apparently been originally scheduled for June last year, but postponed for unspecified reasons, with the MEI issue said to have come after new dates had been agreed. Whatever the background, it would seem an opportune time to have the corporation's founder and still No 1 evangelist establish contact with the highest levels in the Chinese Government. The two-day visit includes an audience with Communist Party leader Jiang Zemin, as well as the top brass from MEI and the firm's biggest China customers. ''We are, basically, trying to meet with as many people as possible,'' said Microsoft's Taipei-based Greater China regional general manager, Yang Shaw-gang. Mr Yang plays down the significance of the MEI ''standards issue'', saying it is more the product of an embryonic relationship between Microsoft and the Chinese Government than seriously conflicting ideals or interests. A more likely root-cause of any friction Microsoft has encountered, though, would be the heavy-handed - certainly less than subtle - approach to what would have to be considered fundamental local language issues. That the Microsoft Greater China region - China, Hong Kong and Taiwan - is managed from Taipei probably did not win the firm any political points from Beijing from the start. Less impressive still would have been its decision to have most development work for the P-Win product done in Taiwan. Add to that some confusion over the character input method incorporated in P-Win, and its apparent failure to consult with the MEI prior to the P-Win launch. This final point might be rationalised down to a simple case of poor table manners, but it appears to have been enough to have unnecessarily alienated key officials in a key ministry and that will hurt. Leading the resistance against Microsoft's P-Win is MEI computer bureau chief Yang Tianxing. Sources said Mr Yang has pressured Microsoft to drop P-Win in favour of a popular program developed by a local software publisher, Suntendy, and known as ChineseStar. Chinese Star gives Chinese-language capability to Windows and to most Windows-compatible software and is bundled with sales of most high-end personal computers sold in China. Mr Yang is said to have persuaded AST Research and Compaq - which are the two biggest foreign PC suppliers in China - to withhold endorsement of the P-Win, which is, itself, an indication of how sensitive the issue is, given the cosy relationship Microsoft enjoys with both manufacturers elsewhere in the world. The largest Chinese PC manufacturer, China Great Wall, has an OEM agreement with Microsoft for the DOS operating system, but not yet for Windows. Mr Gates is renowned as a commercial and political lobbyist of considerable genius, and clearly has no shortage of experience dealing with senior politicians (last month he was talking information superhighways in Australia with Paul Keating). Equally clearly, though, there are big political fences to mend. His China visit will be a busy one. The immediate strategy the company is taking is logical enough. Greater China regional general manager Yang Shaw-gang last week took pains to emphasise that Microsoft's investment in China had only just started. Always, too, the emphasis is on the potential for development work in China. Specifically, Mr Yang said the company was seeking to do significant development on its Chinese Works for DOS, Chinese FoxPro, and Chinese DOS, in China. ''We certainly have plans to expand our investment here, and to do more joint development work in China,'' Mr Yang said. ''From our perspective, we think there is a good opportunity to utilise Chinese engineers. ''I think it just takes time to build these relationships.'' On the piracy front, Microsoft looks to have a long haul in front of it. Mr Gates has been a harsh and outspoken critic in the past of Chinese Government attitudes towards intellectual property rights - the primary reason Microsoft was so late in establishing a direct presence in China was the lack of protection for its copyrighted assets. More recently, China has become a signatory to international agreements on intellectual property protection, but has horrified some foreign firms with its seeming reluctance to punish offenders. Microsoft has been a chief campaigner in Asia against organised software piracy, primarily through its membership of the Business Software Alliance (BSA). The company worked with Chinese authorities to investigate, prosecute and convict the Shenzhen University's Reflective Materials Institute for manufacturing the holograms used on packaging for Microsoft's DOS products. The company claimed the Shenzhen piracy operation had cost it between US$20 million and $30 million. To the astonishment of local Microsoft staffers, the culprits in the case were fined just US$260. Equally demoralising, tens of thousands of personal computers are sold in China pre-installed with pirate copies not only of DOS and Windows, but P-Win.
