Relationship paying dividends for both sides

Microsoft has agreed to buy $700m worth of Chinese hardware in a five-year deal.

Redmond will also give $200m to the National Development and Reform Commission, which invests in China's software companies and enhances technical cooperation and training.

The deals have been made following a trip by Chinese president Hu Jintao to America, during which he spoke highly of Bill Gates and openly welcomed an increase in Microsoft's investment in his country.

"I admire what you have achieved at Microsoft. Because you, Mr Bill Gates, are a friend of China, I'm a friend of Microsoft," said President Hu.

Microsoft will also benefit from the relationship, following a deal announced last week that will see Chinese manufacturer Lenovo buy $1.2bn worth of Windows software over the next 12 months.

Lenovo will preinstall the Windows software on its PCs, which Microsoft hopes will cut the amount of pirated copies of its operating system within China.

Three other Chinese PC manufacturers also plan to buy $400m worth of Windows software.