Microsoft is making a major move into one of the richest oil nations as the Gulf region grows in strategic importance in the technology war between the United States and China.
On Monday night, Microsoft announced a $1.5 billion strategic investment in G42. G42 is based in Abu Dhabi and is a major force in the United Arab Emirates' ambition to become a world leader in artificial intelligence. The minority stake will give Microsoft Vice Chairman and President Brad Smith a seat on G42's board of directors.
The deal is more than just a commercial collaboration between the two AI giants. This is evidence of the strategic positioning of both countries amid rising geopolitical tensions.
The funding comes amid growing concerns from U.S. politicians about the G42's relationship with China. In January, a bipartisan House Select Committee on the Communist Party of China sent a letter to Secretary of Commerce Gina Raimondo urging her to include the G42 on the Entity List, which would give Emirati companies access to sensitive U.S. technology. prohibited.
Such a move would put the G42 under the same umbrella of security concerns as Huawei. Huawei was placed on the Entity List in 2019 and has since been restricted from acquiring key U.S. technologies, including high-end chips and certain Android services.
Now, the deal with Microsoft will determine which side the G42 superpowers align with.
delicate dance
As the UAE maintains a delicate balance between the United States and China, its AI flagship, the G42, will inevitably become a proxy for the technological competition between the two superpowers. The UAE has long been an economic and military ally of the United States, but has recently diverged from U.S. foreign policy and expanded its cooperation with China, a development that concerns the United States.
Last year, UAE President Mohamed bin Zayed attended Russia's flagship economic forum, which had been largely shunned by Western countries in protest of the Ukraine war. The UAE has also stepped up military cooperation with China, including plans for the first joint air force exercises last year.
On the business side, the UAE is attracting Chinese venture capitalists and entrepreneurs who are increasingly excluded from the US market. As U.S. limited partners retreat from China, general managers of Chinese funds are turning to the UAE and its wealthy Middle Eastern neighbors for funding. Capitalizing on the UAE's efforts to electrify its economy, Chinese electric car manufacturers are aggressively pushing plug-in models to market. Last year, premium EV maker Nio secured a massive $738.5 million investment from an Abu Dhabi-backed fund.
Given the growing economic ties between the two countries, it is no wonder that the UAE's AI flagship G42 is forging relationships with Chinese companies. But what appears to be a commercial relationship is a major concern for U.S. politicians.
In a letter to Raimondo, the Chinese Communist Party's House of Representatives Select Committee noted that G42 maintains relationships with companies such as Huawei, biotech giant Beijing Genomics Institute (BGI), and Tencent.
The committee also highlighted the career history of G42 CEO Peng Xiao. He previously held a senior position at a subsidiary of Dark Matter, “a company that develops spyware and surveillance tools that can be used to spy on dissidents, journalists, politicians, and U.S. companies.” ”
Given these alleged ties to China, the committee is concerned that the G42 could provide Chinese companies with access to export-controlled U.S. technology. G42 and its affiliates maintain “extensive commercial relationships” with companies such as Microsoft, Dell, and OpenAI.
Picking side
The deal between the two private tech giants is an unusual case that involves overt support from their respective governments. According to the announcement, this commercial partnership will provide support to the U.S. and UAE governments through a first-of-its-kind binding agreement to apply world-class best practices to ensure safe, reliable and responsible development and deployment. Backed by our warranty. A.I. ”
If this agreement is finalized, Microsoft will be designated as G42's official cloud partner. Under the agreement, the Emirati company's data platform and other key technology infrastructure will be migrated to Microsoft Azure, powering G42's AI product development. G42 already has a partnership with OpenAI, starting in 2023.
The partnership with Microsoft appears to be the G42's continued effort to reduce China's influence. The company is pulling back from China-related investments, including TikTok's parent company ByteDance, and Xiao said late last year that it planned to phase out Chinese hardware because “we can't work with both sides.” Ta.
In return, Microsoft will receive broader market access to the region, where its AI business and Azure will be deployed across a wide range of industries, including financial services, healthcare, energy, government, and education. . The partnership will see the pair launch a $1 billion fund “to help developers improve their AI skills” in the UAE and wider region.
As technology companies have learned over the past few years, it has become increasingly difficult to avoid choosing between the U.S. and China when it comes to technology solutions, markets, and capital. The developments surrounding the G42 show that even countries like the UAE, which have sought to be neutral between two rival nations, will eventually be forced to take sides.