The new employees will be in addition to the company's workforce of 4,500 in China
Microsoft is planning to hire over 1,000 additional employees in China this year, adding to the 4,500 employees it currently has in China.
Microsoft greater China region chairman and chief executive Ralph Haupter said that the new employees will be added in research and development, sales, marketing and services.
The company is promoting its Windows 8 mobile operating system in China but entered late in to the market where its trails competitors Apple and Google's Android operating system is already being used in the country.
"We respect that we have two players in the market which have a strong role, and we feel ready to attack and have different offers to basically change the game plan on that one," Haupter said.
The company is also planning to increase China research and development spending by 15% from $500m over the next year.
Microsoft is also constructing a large cloud computing centre in Shanghai that will employ about 600 people.
In July 2102, Microsoft posted its first loss since becoming a public company in 1986, as the company deferred revenues and wrote down online assets in the lead in to its Windows 8 launch in October.
The quarterly net loss of $492m compares with a net profit of $5.9bn in the same period last year.
Microsoft plans to rope in additional local partners in China to develop mobile applications which will cater to demand in the country.