The last years there seemed to be no relation between the level of protection and enforcement of intellectual property rights and foreign direct investments (FDI) in China. Most companies did not let them scare by the intellectual property related challenges in China and invested massively. Of course one can argue that if China had a higher level of protection and enforcement of intellectual property rights it would attract even more FDI. So because of this China faces some opportunity costs. But China is not complaining, it is doing economically much better than the rest of the world.
For Microsoft the tipping point might just happened. It is complaining that it has a market share in China of 15 to 20 percent but which is only good for 1 percent of the revenues. All thanks to copyright piracy.
Microsoft is considering focussing more on India and Indonesia, according to Steve Ballmer, CEO of the software manufacturer from Redmond, Washington, U.S.A. Then again, Mr Ballmer’s expesses himself sometimes a bit dramatic, see here. Read Alex Kennedy’s article about it for the Associated Press.
It’s not that foreign companies won't invest in China if there is weak IP protection, it’s what they will invest that will be determined by this. Of course they will want their manufacturing and sales offices there, with all supporting functions. And some level of localization-type R&D. But they will not bring in mission critical trade secrets or carry out the most cutting edge R&D. China's weak IP protection regime restricts the quality of the FDI therefore.