SEATTLE (Reuters) - Microsoft Corp.’s new MSN China Internet venture is censoring words such as “freedom,” “democracy” and “human rights” on its free online journals, Microsoft said on Tuesday, putting itself in the middle of a major Web controversy.

The world’s largest software maker said that its “MSN Spaces” service operated out of China, which allows users to set up their own blogs, or online journals, was acting in accordance with local laws.

“MSN abides by the laws, regulations and norms of each country in which it operates,” said Brooke Richardson, MSN lead product manager.

The move comes as the Chinese government attempts to tighten control over the Internet. Last week, a media watchdog group said China would close unregistered China-based domestic web sites and blogs. About three-quarters of domestic Web sites had complied with the registration orders, the group, Reporters without Borders said, citing Chinese figures.

Microsoft rivals such as Yahoo Inc. (Nasdaq:YHOO - news), eBay Inc., Amazon.com Inc. and InterActiveCorp., which have made a string of acquisitions to expand their operations in China, have also been known to censor content in the country.

Words and phrases banned in the subject line of entries for Microsoft’s MSN Spaces on Tuesday also included “Taiwan independence” and “demonstration,” which returned an error message saying “prohibited language, please remove.”

Not even former and current leaders’ names such as “Mao Zedong” or “Hu Jintao” were allowed.

Most of the phrases, however, were allowed in the body of the entries.

Other blog sites lashed out at Microsoft. Online tech forum Slashdot had user comments calling the censorship a “really really awful thing” and accusing the software giant of trying to appease China’s government in the interest of conducting business.

Matt Rosoff, analyst at Directions on Microsoft, an independent research firm in Kirkland, Washington, pointed out that any censorship by Microsoft’s online service was relatively minor compared to the broader censorship by the Chinese government over all Internet activity.

“If Microsoft wants to do business in China they have to obey the laws set by the Chinese government,” Rosoff said, adding that “they’ve done the calculations and decided this was worth it.”

Microsoft’s censorship was first reported by bloggers and news outlets in Asia after MSN Spaces was launched in China on May 26. So far, five million blogs have been created with the service, Microsoft said.

The company has long seen China as a key growth market, but also as a headache because of widespread software piracy and copyright issues. China represents the world’s second-largest Internet market with 94 million users at the end of 2004, a number expected to rise to 134 million by the end of this year, according to official data.

Redmond, Washington-based Microsoft launched MSN China last month by establishing a joint venture with government-operated Shanghai Alliance Investment Ltd. (SAIL) to develop more communication, information and content tied to China.

From Yahoo.com