Cleaning Windows

Gates, the richest man in the world, has famously made almost none of his fortune in the most populous country on the planet. According to evidence in a US court case earlier this year, Gates said he had been "f$#@ed by the Chinese government, and f$#@ed by the Chinese people."

Gates had cleaned up his language by the time Hu arrived. Despite the fact that just about all the Microsoft software in use in China is pirated, Gates lavishly praised China's efforts in protecting intellectual property rights and hosted a dinner for Hu at his home that night.

Let's be kind and say Gates' effusiveness was little more than clever marketing rather than the craven crawling it has been characterized as in some quarters. And to be fair, as Fat Dragon always tries to be, Microsoft did have an angle.

The week before, China had announced (not for the first time, mind you, but a little more seriously than before) that it would require local PC makers to pre-install software into computers prior to their sale.

The problem that Fat Dragon has faced in equipping his modest office in China has not been acquiring pirated software. That's easy. It is that you can only get pirated software. Buying English-language Microsoft operating systems is often just so difficult you have no choice but to get the illegal stuff. Pre-installation would solve that problem.

Fat Dragon's view is that China will eventually enforce anti-piracy measures so that software and audio-visual products, such as computer games and DVDs, are sold legally. It won't happen overnight, but it will happen. A parallel process, which could be even more important, is how the foreign companies are forced to price their products in China, and how that lower pricing affects the rest of the global market.

To be sure, you won't have the same kind of "price destruction" with IPR-intensive products that you have seen in manufacturing – Chinese competitors can't replicate software and DVDs as they can with production-line goods.

But when a DVD costs US$35 in the US and US$0.50 on the streets in China, and Microsoft software is cheaper by an even greater multiple, then something has to give. Indeed, it already has, with US firms trying to remove incentives to buy pirated DVDs by selling them for a few dollars apiece. They are mulling bringing prices even lower, to give the pirates no margin at all.

In a global marketplace, there is bound to be some blowback for multinational companies, so that very soon the China price for DVDs might start to have an impact on the rest of the world rather than the other way around.