Again, I use Microsoft and China because it's an extreme case, and one that's well documented. But a similar phenomenon is happening in many countries with many companies.
Because of the radical scalability of the software market -- the costs are mainly in the development, then you can burn copies 'till the cows come home -- software companies can tweak and fiddle with prices and deals in each country.
Ultimately, the price of anything is whatever the market will bear. But with software, the cost of production is very low -- in fact, most of the costs of production will occur whether you end up selling a thousand copies or a billion.
Those of us who pay US prices for Windows and Office are subsidizing users in piracy countries whether they get a discount or not. The money we pay goes in part to the salaries of the people who build, package and sell the software.
Whether someone in China or elsewhere is just making a pirate copy or getting a steep discount, we're still paying for all or part of the cost of their software either way.
In a country like China with a company like Microsoft, the current strategy is probably best for everyone. Microsoft is trying to slowly change the culture in China, and to get Chinese individuals, companies, government organizations and OEMs to get into the habit of paying for software.
As China emerges into a richer nation, we can count on Microsoft to jack up the prices so that, increasingly, they pay more of their fair share.
In the meantime, software piracy definitely pays for countries like China. While those of us in the West are paying full price -- and more -- for software, they get it either free, or subsidized by you and me.
So when you shell out $200 for your discounted upgrade of Windows 7 Professional (act before July 11), know that you're actually paying only, say, $190 to $150 to for your software, plus between $10 and $50 as a contribution toward a copy of Windows 7 for someone in China. And the reason you're doing that is because they have high rates of software piracy.
You're welcome, China!