Microsoft's $1.5 billion investment in G42 indicates a growing rift between the United States and China

Image credits: G42

As the Gulf region gains strategic importance in the technology war between the United States and China, Microsoft is making a big move towards one of the oil-rich countries in the Middle East.

Monday evening Microsoft Announce A $1.5 billion investment in Group 42 Holding (G42), the Abu Dhabi-based artificial intelligence company that has become a major force in the UAE's efforts to become a global leader in artificial intelligence. The minority stake will give Brad Smith, vice chairman and president of Microsoft, a seat on G42's board.

The deal signals more than just a business collaboration between the two AI giants, it serves as evidence of the two countries' strategic positioning amid rising geopolitical tensions.

This funding comes at a time when American politicians are increasingly concerned about the G42’s relations with China. In January, the bipartisan Select Committee of the Chinese Communist Party sent A letter To Commerce Secretary Gina Raimondo, urging the Commerce Department to investigate G42 for inclusion on the Bureau of Industry and Security's Entity List, which would prevent the UAE company from accessing sensitive U.S. technologies.

Such a move would put G42 under the same umbrella of security concerns as Huawei, which was placed on the Entity List in 2019. Since then, Huawei has been blocked from acquiring important US technologies, including high-end chips and some Android services.

Microsoft's investment this week appears to be an indication of the superpower the G42 has joined.

Delicate dance

Although a long-time economic and military ally of the United States, the UAE has recently moved away from Washington's foreign policy and expanded its partnerships with China, a development that worries Washington.

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Last year, the president of the United Arab Emirates, Mohammed bin Zayed Al Nahyan, attended Russia's leading economic forum, which Western countries largely avoided in protest of the war in Ukraine. The UAE has also increased its military cooperation with China, and even plans to do so The Air Force's first joint training exercise last year.

On the business side, the UAE is attracting a wave of Chinese venture capitalists and entrepreneurs who are increasingly excluded from the American market. Chinese fund managers They also headed to the United Arab Emirates and its wealthy neighbors in the Middle East For capital as limited partners in the US withdrawal from China. Capitalizing on the UAE's commitment to electrifying its economy, Chinese electric vehicle manufacturers have aggressively promoted plug-in models in the market. Last year, premium electric car maker Nio received a $738.5 million investment from a fund backed by Abu Dhabi.

Given the thriving economic alliance between the two countries, it is not surprising that the G42, which is leading the development of artificial intelligence in the UAE, is also establishing relationships with Chinese companies. But these trade relations greatly worried the United States

In its letter to Raimondo, the House Select Committee on the Chinese Communist Party noted that the G42 maintains relationships with entities such as Huawei, the Beijing Genome Institute (BGI) and Tencent.

The committee also highlighted the background of G42 CEO Peng Xiao, who previously held a senior position at a subsidiary of DarkMatter, a company that develops “espionage and surveillance tools that can be used to spy on dissidents, journalists, politicians, and American companies.” “The committee wrote.

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Given these alleged Chinese ties, the committee is concerned that the G42 could be a means for Chinese companies to access US technologies that are subject to export controls. The committee is particularly concerned about its “extensive business relationships” with US technology companies including Microsoft, Dell and others OpenAI.

Pick sides

Microsoft's investment in G42 is an uncommon example of a deal that received public support from its governments. According to the two companies' statement, this “business partnership is supported by assurances from the governments of the United States and the United Arab Emirates through a binding agreement that is the first of its kind to implement global best practices to ensure safe, reliable, and responsible development.” Deploying artificial intelligence.”

If the deal goes through, Microsoft will be named as G42's official cloud partner. Under the agreement, the Emirati company's data platform and other key infrastructure will be transferred to Microsoft Azure, which will support the development of G42 products. G42 already has a partnership with OpenAI Started in 2023.

The partnership with Microsoft appears to be part of an ongoing effort at the G42 to mitigate its Chinese influence. a company It liquidated its investments related to China, including its shares in ByteDance, the parent company of TikTok, in February this year. Xiao too He said Late last year, the company planned to phase out Chinese devices, saying: “We can't work with both sides.”

What Microsoft gains in return is broad access to the region's markets. Its AI and Azure businesses will have access to a range of industries such as financial services, healthcare, energy, government and education. The partnership will also see the pair launch a $1 billion fund “for developers to boost AI skills” in the UAE and the wider region.

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As technology companies have learned in the past few years, it has become increasingly difficult to avoid choosing between the United States and China — whether in terms of technology sellers, users, or investors. Developments surrounding the G42 show that even a country like the UAE, which has sought to maintain a neutral stance, may eventually be forced to take sides.

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