With its Windows OS, Microsoft is likely the biggest victim of piracy on Earth, and it's no secret that China plays a major role in that. But, so too do other issues, such as the Chinese government's distaste or distrust of American companies. This ties into the reason that China is working to get its own CPU off the ground, as well as its own OS.
Microsoft realizes this problem well, but can't ignore the huge potential of penetrating the Chinese government market. So it has decided to go out of its comfort zone to cater to the Chinese government's requirements. It's doing so by establishing a new company called C&M Information Technologies in Beijing, which will act as a bit of a proxy between Microsoft and the Chinese government. The venture is currently waiting on regulatory approval.
C&M Information Technologies will act as the exclusive licensor of Windows 10 to the Chinese government and "critical infrastructure". It will handle things like product activation and patching, bypassing the need for these computers to handshake with American servers. It will also continually gather feedback from customers to be better able to mold the OS to their requirements.
While Windows is a modular enough OS as it is, Microsoft is making sure that China is happy with the end product. The OS could automatically ship with certain pieces of software, such as a government-approved anti-virus solutions. Ultimately, Microsoft will supply C&M with the core Windows, and C&M will customize and tweak it, and then sell and support it.
This is quite the effort on Microsoft's part, but the potential revenue boost should make up for that.