"It is another setback for the US software giant after a $3.5-million deal with the Beijing municipal government was cancelled late last month amid complaints that local governments are not buying enough domestically developed software," the China Daily reported.  

An official with the Shanxi Government Procurement Centre, Sang Guoping, was quoted by the newspaper as saying that four domestic software vendors shared the deal for 7,000 sets of operating systems, office and anti-virus software applications worth $240,000 deal.  

Sang said Microsoft's Windows and Office software took part in the bidding but all failed.  

"The price of Microsoft software is much higher than its domestic rivals. The quotation given by Windows was $120,000 for 1,000 sets, and that for Office was $145,000, both of which are two to three times higher than that for domestic ones," the official said. 

"The price is an important factor. Besides, the government should give homegrown products preferential treatment in procurement according to law," the official added.

The government's procurement of software is a touchy issue in China, the paper noted. Last month, the Beijing municipal government came under fire for damaging China's nascent software industry by giving Microsoft large software purchase orders.