Microsoft's failures in the Chinese market prompted a key employee to defect to search engine firm Google, a US court heard during testimony.
China offers such huge potential that firms are battling for control
Former Microsoft vice-president Kai-Fu Lee is at the centre of a bitter employment wrangle after he was hired by Google to set up a research centre.
Microsoft claims Mr Lee, an expert in internet search technology, broke the terms of his contract by moving.
The case has highlighted an increasing rivalry between Microsoft and Google.
Google has started to offer services such as Talk, a program that lets users talk to each other over the internet, and instant messaging.
Both services are in direct competition with similar Microsoft products.
Testimony heard at the court in Seattle has painted an intriguing picture of top executives.
According to Mr Lee, Microsoft founder Bill Gates used an expletive to describe his company's treatment by the Chinese government.
And earlier this week, Microsoft chief executive Steve Ballmer was said to have vowed to "kill Google" in an expletive-laden tirade against the firm.
Microsoft denies that Mr Gates and Mr Ballmer ever made those comments, adding that the allegations are being used to "deflect interest from the real issues of the case".
Mr Lee told a court in Seattle on Tuesday that he had become frustrated with Microsoft's strategy in China.
'Look what I did'
The company was failing to win over government officials and was not making inroads into the local market, he said.
As a result, he approached Google about working for them.
Microsoft's lawyers said that Mr Lee's way of selling himself was to say, "'look what I did at Microsoft and look what I can do for you'".
Google countered by saying that much of the work that Mr Lee did for Microsoft had been exaggerated and could be traced back to his time as a student and employee at Apple Computer.
Microsoft has won a temporary order barring Mr Lee from carrying out the full range of jobs he was hired to do, and is asking that the ruling to be extended until the case comes to court in January.