Tech Giants Clash: Microsoft Sells OpenAI Models in China While OpenAI and Anthropic Refuse

Microsoft has strategically positioned itself as the primary supplier of OpenAI models within the Chinese market, a role no other American AI vendor holds. This unique arrangement allows Microsoft to sell advanced GPT series models to major Chinese internet companies, even as OpenAI itself and other key players like Anthropic actively refrain from direct engagement in China due to concerns over intellectual property and potential misuse.

The scale of Microsoft's operations in China is substantial. ByteDance, for instance, has emerged as Microsoft’s largest AI customer in recent years, reportedly relying heavily on OpenAI models. Industry insiders familiar with the matter suggest that ByteDance is on track to expend over US$1 billion annually on Microsoft’s AI and cloud services. Other prominent Chinese entities such as Ant Group, Meituan, and Tencent also procure AI models via Microsoft Azure, though Ant Group maintains that it predominantly develops its own models and that its core products do not depend on external systems.

Internally, Microsoft has lauded this growth. According to a transcript reviewed by Bloomberg, Judson Althoff, then-chief commercial officer, revealed at a July 2025 sales meeting that Azure’s AI revenue in China had expanded more rapidly than in any other sales territory. It approximately tripled in the financial year ending June 2025, following an astounding 400% surge the preceding year. Althoff characterized Microsoft as the sole company capable of “bringing those two places together,” referring to the AI innovation hubs of the US West Coast and China’s east. Separately, President Brad Smith has informed US lawmakers that the company’s China business contributed approximately 1.5% to Microsoft’s total revenue in 2024.

The exclusivity of Microsoft’s role in distributing OpenAI models in China stems from its distinct contract with OpenAI, which grants Microsoft the authority to determine its own terms for selling GPT models internationally. Both OpenAI and Anthropic have explicitly declined to sell their models directly into China, with Anthropic’s offerings being entirely absent from Microsoft’s China portfolio. Consequently, Microsoft acts as the crucial intermediary for these models, serving a market that their creators deem too risky for direct involvement.

Risk management remains a persistent tension point. OpenAI has privately urged Microsoft to enhance efforts to prevent Chinese customers from “distilling” its models—a practice involving using one model's outputs to train another. Microsoft asserts its use of automated monitoring and a policy of selling only to established companies, not individual developers. However, sources cited by Bloomberg indicate that Chinese buyers do not face elevated scrutiny, and the policing of synthetic data generated from these models proves challenging. To mitigate its exposure, Microsoft strategically hosts the OpenAI models outside of Chinese territory, with customers accessing them over the internet from data centers located in regions such as Singapore.

Adding to the complexity is Microsoft's simultaneous engagement with Chinese AI models for Western markets. In January 2025, Microsoft integrated DeepSeek’s R1 into Azure AI Foundry. More recently, in the current month, it confirmed to Axios that it is testing a fine-tuned, Azure-hosted version of DeepSeek-V4. This variant is intended as a more cost-effective alternative for Copilot Cowork, an enterprise agent presently powered by OpenAI and Anthropic models. This demonstrates Microsoft's unique balancing act: it sells American models into Chinese businesses while simultaneously offering Chinese models to Western enterprises, thereby capturing profit margins on both sides of this international technology trade.

The long-term viability of this intricate balancing act is subject to evolving political dynamics. The China business is a contentious subject in Washington, where lawmakers frequently characterize China’s advancements in AI as a threat to American industry. Furthermore, OpenAI’s private objections regarding model distillation could escalate. For the time being, however, Microsoft maintains a dominant position in the market for OpenAI models in China, serving as the singular entity profiting from both ends of this cross-border AI exchange.