Microsoft has announced the opening of a new research lab in China that will work on online advertising technology.

The software giant is competing for advertising dollars with local rivals in China, such as the popular Baidu search engine, and foreign giants like Google and Yahoo.

The new 'adLab' will work on improving MSN adCenter, Microsoft's pay-per-click advertising platform. Early versions of adCenter deliver context-sensitive adverts on web pages.

In most respects the service is similar to the text advertising pioneered by Google, which still generates the lion's share of Google's revenue. Microsoft has predicted that online ad spending will rise to $30bn a year by 2008.

Microsoft said in a statement that the research lab will employ scientists specialising in "data mining, information retrieval, statistical analysis, artificial intelligence, auction theory, visual computing and digital media".

There are signs that Microsoft has targeted the potentially huge Chinese advertising market since the early days of its online ad technology development. Among the company's original testbed locations for adCenter was Singapore, where Chinese is one of the official languages.