Bill Gates has unveiled Microsoft’s unlikely secret weapon in China, a territory he is adamant will turn out to be the software giant's largest market: piracy.

"It's easier for our software to compete with Linux when there's piracy than when there's not," the Microsoft co-founder and chairman told Fortune magazine.

The idea that bootlegged software can create demand for its legitimate cousin in the longer term is not new.

But Mr Gates's admission that pirated software can help rather than hinder Microsoft jars violently with the party line.

The company, for instance, is a key member of the Business Software Alliance, the industry group that recently fined an unnamed British business £250,000 for using pirated software.

That action was part of a drive to cut a UK piracy rate running at about 26 per cent and costing more than an estimated £1 billion a year.

In the US it is offering a bounty of up to $1 million (£500,000) to workers who inform on employers who use counterfeit programmes.

In China, piracy is an even hotter topic: a recent global software piracy study by the BSA revealed that China's piracy rate had retreated by 10 per cent in the past three years — but only to 82 per cent from 92 per cent.

Losses from bootlegging there are estimated to have cost the software industry $5.43 billion last year — more than four times the value of the legitimate market, despite a near-90 per cent annual increase in sales.

Mr Gates’s comments also conflict with the attitudes of software rivals such as Adobe, the developer behind the widely used Photoshop application, which said today that it was cranking up measures designed to stamp out rampant Chinese software piracy.

Indeed, such has been the group’s frustration, Adobe once gave warning that it would pull the plug on its production of software in Chinese and other Asian languages if Beijing did not make headway on piracy.

Mr Gates's fondness for China and its potential looks as if it were being reciprocated.

His latest remarks came as he visited the country on a tour on which he met the kind of adulation more usually reserved for Hollywood’s glitterati.

On his trip he was made an honorary trustee of Peking University and awarded an honorary doctorate from Tsinghua University in Beijing.

That visit followed a trip by Hu Jintao, the Chinese President, to the Gates home for dinner last spring.

"You are a friend to the Chinese people, and I am a friend of Microsoft," Mr Hu apparently told his host. "Every morning I go to my office and use your software."

Beijing was not always so open to Microsoft.

For years after entering the Chinese market in 1992, the group’s Windows operating system struggled to make its mark in the Middle Kingdom, in large part because of an uncompetitive pricing system and the authorities’ decision to adopt the rival Linux system — and, of course, the ease with which pirates could produce counterfeits.

However, there are signs that Microsoft is gaining traction in China — a feat that Mr Gates suggested was aided by the vast volume of the company’s software that has been bootlegged by Chinese pirates, making Windows the nation’s de facto standard.

Cutting prices for Windows — to as low as £1.50 for students — has also helped.

Microsoft does not break out figures, but sales in China this year are expected to hit about $700 million.

That is still less than the group’s earnings in California, but up threefold from 2004.

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