Microsoft and the Chinese authorities have denied reports that one of the company's operating systems is to be banned in China.

It follows a report that Windows 2000 was to be outlawed in China in favour of a different system that would support Chinese software development.

Zhang Qi, China's senior software industry regulator, said: "My department has never made such a decision, much less made any demands."

Microsoft's regional director, Michael Rawding, added the report, published in the Yangcheng Evening News, was "completely baseless".

He said Chinese Government ministries were strong customers of Windows NT, the system that 2000 is designed to replace, and that it would be released in China in March.

Past differences

The capitalist success story and the Communist state came together to dismiss the report despite past disagreements, most notably over software piracy and the internet market.

Piracy is rampant in China, reaching a rate of more than 90% according to some estimates, but the Chinese Government has said it uses legally-registered copies.

A piracy legal action brought by Microsoft against a small Chinese firm unleashed a nationalist backlash from some Chinese who regard the US software giant as a bully.

Last year, China warned foreign investors to steer clear of its rapidly growing internet market, adding those that had already invested would be responsible for losses caused by clashes with government policy.

Microsoft, and other leading Western companies including Yahoo and Compaq, were among those already with a presence in China's rapidly developing internet market.

Microsoft also faced a stream of negative publicity in China after the company was accused of arrogance in a book written by its former Chinese general manager.