Microsoft plays high-stakes game in tech cold war with Emirates AI deal

Microsoft said Tuesday it will make a $1.5 billion investment in G42, an artificial intelligence giant in the United Arab Emirates, in a deal largely orchestrated by the Biden administration to defeat China as Washington and Beijing battle over who will exert technological influence in the Persian Gulf region and beyond.

As part of the partnership, Microsoft will grant G42 permission to sell Microsoft services that use powerful AI chips, used to train and fine-tune generative AI models. In exchange, the G42, which has been under scrutiny by Washington for its ties to China, will use Microsoft's cloud services and adhere to a security agreement negotiated in detailed conversations with the US government. The agreement places a number of protections on AI products shared with G42 and includes, among other things, an agreement to eliminate Chinese equipment from G42 operations.

“When it comes to emerging technology, you can't be on China's side and ours at the same time,” said Gina Raimondo, the Commerce secretary, who has twice traveled to the Emirates to talk about security arrangements for this and other partnerships .

The deal is highly unusual, Brad Smith, Microsoft's president, said in an interview, reflecting the U.S. government's extraordinary concern about protecting the intellectual property behind artificial intelligence programs.

“The United States is naturally concerned that the most important technology is held by a trusted American company,” said Smith, who will take a seat on the G42 board.

The investment could help the United States counter China's growing influence in the Gulf region. If the moves are successful, the G42 will be brought into the US fold and reduce its ties with China. The deal could also become a model for how U.S. companies leverage their technological leadership in artificial intelligence to wean countries away from Chinese technology, while reaping huge financial rewards.

But the issue is sensitive, as US officials have raised doubts about the G42. This year, a congressional committee wrote a letter urging the Commerce Department to consider whether G42 should face trade restrictions over its ties to China, which include partnerships with Chinese companies and employees from government-linked companies .

In an interview, Raimondo, who has been at the center of efforts to block China from obtaining the most advanced semiconductors and the equipment to make them, said the agreement “does not authorize the transfer of artificial intelligence, or intelligence models artificial intelligence, or GPU” – the processors needed to develop AI applications – and “ensures that such technologies can be developed, protected and deployed securely”.

Although the Emirates and the United States have not signed a separate agreement, Raimondo said: “We have been fully informed and we are confident that this agreement is consistent with our values.”

In a statement, Peng Xiao, chief executive officer of G42 Group, said that “through Microsoft's strategic investment, we are advancing our mission of delivering cutting-edge AI technologies at scale.”

The United States and China are vying for technological influence in the Persian Gulf, where hundreds of billions of dollars are up for grabs and major investors, including Saudi Arabia, are expected to spend billions on the technology. In the rush to diversify away from oil, many leaders in the region have set their sights on artificial intelligence and have been happy to pit the US and China against each other.

While the UAE is an important diplomatic and intelligence partner of the United States and a major buyer of American weapons, it has increasingly expanded its military and economic ties with China. Part of its national surveillance system is built on Chinese technology and its telecommunications work on hardware from Huawei, a Chinese supplier. That has fueled concerns among U.S. officials, who often visit the Persian Gulf nation to discuss security issues.

But U.S. officials also fear that the spread of powerful artificial intelligence technology critical to national security could ultimately be used by China or engineers linked to the Chinese government if not sufficiently protected. Last month, a US The Cybersecurity Review Board has sharply criticized Microsoft for a hack in which Chinese attackers accessed the data of senior officials. Any major leak, such as the G42 selling Microsoft AI solutions to companies created in the region by China, would run counter to Biden administration policies that have sought to limit China's access to cutting-edge technology.

“This is among the most advanced technologies that the United States has,” said Gregory Allen, a research fellow at the Center for Strategic and International Studies and a former U.S. defense official who has worked on artificial intelligence. “There should be a very strategic rationale for relocating it anywhere.”

For Microsoft, a deal with G42 offers potential access to the Emirates' enormous wealth. The company, whose chairman is Sheikh Tahnoon bin Zayed, the Emirates' national security adviser and younger brother of the country's ruler, is a key part of the Emirates' efforts to become a major player in artificial intelligence.

Despite its name taken from “The Hitchhiker's Guide to the Galaxy,” in which the answer to “life's fundamental question” is 42, the G42 is deeply rooted in the Emirati security state. He specializes in artificial intelligence and recently worked on creating an Arabic chatbot, called Jais.

The G42 also focuses on biotechnology and surveillance. Many of its executives, including Mr. Xiao, were associated with a company called DarkMatter, an Emirati cyber-intelligence and hacking firm that employs former spies.

In its letter this year, the Chinese Communist Party's bipartisan Select House Committee said Mr. Xiao is connected to a vast network of companies that “materially support” the Chinese military's technological advancement.

The origins of Tuesday's deal date back to White House meetings last year, when top national security aides raised the issue with technology executives about how to encourage trade deals that would deepen U.S. ties with companies across the globe. world, in particular those in which China is also interested.

Under the deal, the G42 will stop using Huawei telecommunications equipment, which the United States fears could provide a backdoor to Chinese intelligence agencies. The agreement also commits the G42 to seeking permission before sharing its technologies with other governments or militaries and prohibits it from using the technology for surveillance. Microsoft will also have the power to verify the G42's use of its technology.

G42 would use artificial intelligence computing power in Microsoft's data center in the Emirates, sensitive technology that cannot be sold in the country without an export license. Access to computing power would likely give the G42 a competitive advantage in the region. A second phase of the deal, which could prove even more controversial and has not yet been negotiated, could transfer some of Microsoft's AI technology to G42.

US intelligence officials have raised concerns about the G42's relationship with China in a series of classified assessments, the New York Times previously reported. Biden administration officials have also pushed their Emirati counterparts to cut the company's ties to China. Some officials believe the US pressure campaign has produced some results, but remain concerned about less obvious ties between the G42 and China.

A G42 executive previously worked at Chinese AI surveillance company Yitu, which has extensive ties to Chinese security services and operates facial recognition-based monitoring across the country. The company also has ties to a Chinese genetics giant, BGI, whose subsidiaries were blacklisted by the Biden administration last year. Mr. Xiao also headed a company involved in 2019 in starting and operating a social media app, ToTok, which US intelligence agencies said was an Emirati spy tool used to collect data from users.

In recent months, G42 has agreed to withdraw from some of its ties to China, including selling a stake in TikTok owner ByteDance and withdrawing Huawei technology from its operations, according to U.S. officials.

Edward Wong contributed to the reporting.

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