Beijing's city government has cancelled a controversial purchase of Rmb29m ($3.5m, ?2.6m, ?1.8m) of software from Microsoft after local rivals complained about the way the deal was handled.

Beijing's decision to scrap the high-profile order is a potentially significant setback for Microsoft in China, since it is likely to make other local authorities more cautious about supporting a company already viewed with suspicion by many central government officials.