When Microsoft opened an advanced research lab in Beijing in 1998, it was a time of optimism about technology and China.
The company hired hundreds of researchers for the lab, which pioneered Microsoft’s work in voice, image and face recognition and the kind of artificial intelligence that later gave rise to online chatbots like ChatGPT. The Beijing operation eventually became one of the most important artificial intelligence laboratories in the world. Bill Gates, co-founder of Microsoft, called it an opportunity to tap China’s “deep pool of intellectual talent.”
But as tensions rise between the United States and China over which nation will lead the world’s technological future, Microsoft’s top leaders — including Satya Nadella, its CEO, and Brad Smith, its president — have debated what to do with the valuable laboratory for at least the past year, four current and former Microsoft employees said.
The company has faced questions from U.S. officials about the sustainability of maintaining an 800-person advanced technology lab in China, the sources said. Microsoft said it had set up guardrails at the lab, preventing researchers from carrying out politically sensitive work.
The company, which is based in Redmond, Wash., said it has also opened an outpost of the lab in Vancouver, British Columbia, and plans to move some researchers from China to the site. The outpost is a reserve in case more researchers need to relocate, two people said. The idea of closing or moving the lab has floated around, but Microsoft leaders favor continuing it in China, four people said.
“We are more committed than ever to this team’s lab and world-class research,” Peter Lee, who leads Microsoft Research, a network of eight labs around the world, said in a statement. Using the lab’s formal name, he added: “There has been no discussion or support for shutting down Microsoft Research Asia and we look forward to continuing our research program.”
The debate within Microsoft stands out because the company is one of the few major U.S. tech companies — along with Apple and Tesla — to maintain a foothold in China. As China fueled a domestic tech industry and geopolitical tensions with the United States increased, American companies like Google reduced their presence in the country. Facebook and other US social media sites like X have been blocked in China for years.
Microsoft-owned LinkedIn shut down its professional social network in China in 2021, citing growing compliance demands. But Microsoft has kept its Bing search engine as the only foreign search engine in China, despite being heavily censored, and offers its Windows operating system, cloud computing and applications for business customers there.
Microsoft has discussed the lab’s future for several years, five people familiar with the situation said. It has become a target of national security concerns amid the rise of artificial intelligence and growing aggression between the United States and China. The hypothetical risks are that China could hack or otherwise infiltrate the lab, or that its researchers could leave Microsoft to join Chinese companies that work closely with the government, the sources said.
The Biden administration privately asked Microsoft for information about the lab as it drafted a ban over the past two years on new U.S. investments in companies building sensitive technologies in China that Beijing could use to improve its military, two people familiar with the matter said with conversations. (The proposed rules, issued in August, are not yet final.)
Senators asked Smith about Microsoft’s ties to China during a subcommittee on artificial intelligence hearing in September. He said the country accounted for 1.5% of Microsoft’s sales, which last fiscal year were $212 billion.
Microsoft faces “a difficult balance,” said Chris Miller, author of “Chip War,” a book that traces the geopolitical history of the technology. “They need to consider where the trust of the political system is going.”
The White House declined to comment.
Microsoft’s lab in Beijing came about when Gates appointed Kai-Fu Lee, a Taiwanese-born artificial intelligence researcher, to build the operation. (Dr. Lee later left to join Google and now runs a venture capital firm.)
The lab’s researchers, many of whom were at the top of their fields, explored technologies such as speech recognition, computer vision and natural language understanding, which are cornerstones in the development of artificial intelligence. Some researchers from the lab have left for key positions at Chinese tech giants like Alibaba, Baidu and Tencent or helped found startups like Megvii, a facial recognition company that has contributed to a vast nationwide surveillance system in the country.
In 2018, Microsoft said it had invested more than $1 billion in research and development in China over the previous decade. The technical talent and invention of the Beijing laboratory underpin a key internal argument in support of the project.
But the lab’s success and prestige have also drawn attention in Washington, where the White House has increasingly limited China’s access to crucial technologies, citing national security.
Microsoft leaders have been discussing how to handle the tensions. Gates, who is still in regular contact with company executives and supports the global effort, has long supported the Beijing lab, people familiar with the matter said. In June he traveled to China and met with President Xi Jinping, who told him that he was “the first American friend I have met this year.”
Microsoft’s technology and research leaders, including Peter Lee and Kevin Scott, the chief technology officer, also support the lab, arguing that it has produced crucial technological breakthroughs, two of the people said. Mr. Smith also supports the lab.
“The lesson of history is that countries succeed when they learn from the world,” Smith said in a statement. “Guardrails and controls are essential, while commitment remains vital.”
In recent years, Microsoft has limited the projects that researchers in China can work on, people familiar with the matter said. Last fall, Chinese researchers were not allowed to be part of Microsoft’s small teams that had early access to GPT-4, the advanced artificial intelligence system developed by Microsoft partner OpenAI.
The lab also has restrictions on work related to quantum computing, facial recognition and synthetic media, Microsoft said. The company also blocks hiring or working with students and researchers from universities affiliated with the Chinese military.
(The New York Times sued OpenAI and Microsoft last month for copyright infringement over the training of their artificial intelligence systems.)
At the lab’s Vancouver outpost, researchers can freely access critical technologies, including the computing power and OpenAI systems needed for cutting-edge research, two people familiar with the lab said.
Kate Conger contributed reporting from San Francisco.