In the escalating tech battle between the United States and China, Microsoft makes a major move into one of the Gulf region’s oil-rich nations.

Microsoft revealed a $1.5 billion strategic investment in G42 on Monday night. G42 is an Abu Dhabi-based business that has grown to be a significant player in the UAE’s ambition to lead the world in artificial intelligence. Brad Smith, the president and vice chair of Microsoft, will join the G42 board of directors as a result of the minority investment.

In the midst of escalating geopolitical tensions, the deal represents more than just a business partnership between two titans of AI; it also demonstrates the strategic positioning of two nations.

The financing coincides with growing suspicions among US lawmakers regarding G42’s connections to China. January was In a letter to Commerce Secretary Gina Raimondo, the bipartisan House Select Committee on the Chinese Communist Party demanded that G42 be added to the Entity List, preventing the Emirati corporation from gaining access to classified American technologies.

G42 would then be subject to the same security issues as Huawei, which was prohibited from obtaining essential U.S. technologies, including as high-end CPUs and some Android services, when it was placed on the Entity List in 2019.

The Microsoft investment now seems to be a decision about which superpower G42 has chosen to support.

elegant dancing
The UAE’s AI poster child, G42, has unavoidably turned into a stand-in in the tech competition between the two superpowers as it strikes a precarious balance between the US and China. Although the United Arab Emirates has long been an economic and military ally of the United States, Washington is concerned by the UAE’s recent departure from Washington’s foreign policy and expansion of its alliances with China.

Mohamed bin Zayed, the president of the United Arab Emirates, attended Russia’s premier economic conference last year, despite the Western world’s widespread opposition due to the conflict in Ukraine. Along with stepping up military ties, the UAE and China last year planned their first joint air force training.

From a business perspective, the United Arab Emirates is drawing a growing number of Chinese venture investors and entrepreneurs who are being shut out of the American market. As American limited partners withdraw from China, managers of Chinese funds are looking for capital in the United Arab Emirates and its wealthy neighbours. Plug-in versions have been actively promoted by China’s electric car makers, taking advantage of the UAE’s desire to electrify its economy. Nio, a high-end EV manufacturer, raised $738.5 million financial commitment from a fund funded by Abu Dhabi.

It’s hardly surprising that G42, the UAE’s leading AI company, has ties to Chinese companies given the growing commercial relations between the two nations. However, the United States has been quite worried about what seem to be business links.

The House Select Committee on the CCP mentioned in its letter to Raimondo that G42 has affiliations with businesses including as Tencent, Huawei, and Beijing Genomics Institute (BGI).

The CEO of G42, Peng Xiao, has a history that the Committee also brought to light. He was formerly a senior executive at a DarkMatter subsidiary, which creates “spyware and surveillance tools that can be used to spy on dissidents, journalists, politicians, and U.S. companies.”

The Committee is worried that given these purported Chinese connections,

G42 may provide Chinese companies access to US technologies that are normally restricted from export. Its “extensive commercial relationships” with American tech giants, such as Microsoft, Dell, and OpenAI, are of special concern to the Committee.

Taking a stance
The agreement between Microsoft and G42 is a unique instance of overt government support for this business. The release states that this is a “binding agreement of its kind to apply world-class best practices to ensure the secure, trusted, and responsible development and deployment of AI,” which is supported by assurances to the governments of the United States and the United Arab Emirates.

Should the agreement be finalised, Microsoft will be recognised as G42’s official cloud partner. As per the deal, G42’s AI product development will be fueled by the migration of the Emirati company’s data platform and other critical technical infrastructure to Microsoft Azure. G42 and OpenAI already have a cooperation that was established in 2023.

The collaboration with Microsoft seems to be a component of G42’s continuous endeavour to reduce its Chinese impact. The company has sold off its holdings in China, including ByteDance, the parent company of TikTok. Late last year, Xiao said that the company intended to phase out Chinese hardware, stating, “We cannot work with both sides.”

In exchange, Microsoft receives broad market access in the area, where Azure and its AI division will be used in a variety of sectors, including government, education, healthcare, and energy. As part of their collaboration, the two will establish a $1 billion fund in the UAE and the surrounding area “for developers to boost AI skills.”

As tech businesses have discovered in recent years, it’s become more and harder to resist siding with either China or the United States whether it comes to users or technology vendors.

or financiers. The events surrounding G42 show that even the UAE, which has attempted to act as a middle ground between the two antagonistic countries, will eventually have to choose a side.

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