Microsoft Expands AI Services in China While Testing Chinese Model DeepSeek for Copilot Cowork

The U.S.–China AI rivalry leaves a loophole: export controls target chips, not cloud services. Microsoft’s Azure now sells OpenAI models to Chinese tech giants. ByteDance, TikTok’s owner, is set to spend over $1 billion annually; Ant Group, Meituan and Tencent also buy heavily. Azure AI revenue in China tripled in FY 2025, and the China business made up about 1.5 % of Microsoft’s 2024 revenue.

Microsoft Expands AI Services to Chinese Firms Through Azure CloudBloombergMicrosoft sells OpenAI models to Chinese firms

Rising token fees from OpenAI and Anthropic prompted Microsoft to test a self-hosted, fine-tuned DeepSeek-V4 for Copilot Cowork, enabling usage-based pricing. DeepSeek recently raised >50 billion yuan, is valued >$50 billion, and accounts for 44 % of new model downloads on Hugging Face. Microsoft says any DeepSeek-based service will keep data within Azure’s secure environment, never routing it to China.

Microsoft Weighs Adding China's DeepSeek to Copilot

Microsoft says Azure OpenAI services are offered only to vetted enterprises and that model hosting occurs outside mainland China to protect IP. President Brad Smith testified the China operation accounts for roughly 1.5 % of total revenue. OpenAI has raised concerns about Chinese firms “distilling” its models, but no public policy change is noted. In September 2024 the U.S. House passed a bill to tighten oversight of cloud-based AI exports.

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U.S. lawmakers call China’s AI surge an ‘existential threat’ to the tech sector. The Trump administration has threatened bans on Chinese AI firms and suspended Anthropic’s latest model for foreign nationals. G7 leaders have debated a “trusted-partner” framework for access to top U.S. models, reflecting broader worries about foreign use of advanced AI.

June 2026 AI News Roundup: G7 looks at AI model access as OpenAI costs, China rivalry grow

OpenAI publicly refuses to sell its models to China, yet Microsoft provides access via Azure, creating a policy inconsistency. How ByteDance, Meituan and Tencent use the models remains undisclosed, and Microsoft’s monitoring of Chinese usage is not fully transparent. OpenAI’s private complaint about model “distillation” has not been publicly corroborated.

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• “The world’s most elite AI solutions are being built on the western coast of the United States and the eastern coast of China,” — Judson Althoff, former Chief Commercial Officer, Microsoft

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• “The one company bringing those two places together is Microsoft. It’s pretty awesome.” — Judson Althoff, former Chief Commercial Officer, Microsoft

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• “Our tests led us to conclude that offering Copilot Cowork on an unlimited-use basis is impossible.” — Charles Lamanna, Corporate Vice President, Microsoft Copilot, Agents and Platform division

Microsoft Weighs Adding China's DeepSeek to Copilot

Microsoft plans to roll out a DeepSeek-enabled Copilot Cowork option within weeks, while the U.S. House AI export-oversight bill moves toward enactment. Ongoing scrutiny of Chinese usage and possible policy adjustments with OpenAI will shape Microsoft’s global AI strategy.

Microsoft Weighs Adding China's DeepSeek to Copilot