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Microsoft enters high-stakes game in tech Cold War with UAE AI deal

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Microsoft announced Tuesday that it would invest $1.5 billion in G42an artificial intelligence giant from the United Arab Emirates, part of a deal largely orchestrated by the Biden administration to exclude China as Washington and Beijing argue over who will exert technological influence in the Persian Gulf region and beyond.

As part of the partnership, Microsoft will authorize G42 to sell Microsoft services using powerful AI chips, used to train and refine generative AI models. In exchange, the G42, which is under scrutiny from 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. It places a series of protections on AI products shared with G42 and includes, among other measures, an agreement to remove Chinese equipment from G42 operations.

“When it comes to emerging technologies, you can’t be in China’s camp and ours at the same time,” said Gina Raimondo, the commerce secretary, who visited the Emirates twice to discuss security arrangements for this and other partnerships.

The deal is highly unusual, Microsoft President Brad Smith said in an interview, reflecting the U.S. government’s extreme concern about protecting the intellectual property behind AI programs.

“The United States is understandably concerned that the most important technology is guarded by a trusted American company,” said Smith, who will serve on G42’s board of directors.

This investment could help the United States combat China’s growing influence in the Gulf region. If these steps succeed, the G42 will be integrated into the American fold and reduce its ties with China. The deal could also become a model for how U.S. companies leverage their technological leadership in AI to lure countries away from Chinese technology, while reaping huge financial rewards.

But the subject is sensitive, as US officials have raised questions about the G42. This year, a congressional committee wrote a letter urging the Commerce Department to check if G42 is expected to be subject to trade restrictions due to its ties to China, which include partnerships with Chinese companies and employees from government-linked companies.

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

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

In a statement, Peng Xiao, general manager of G42 Group, said that “with Microsoft’s strategic investment, we are advancing our mission of delivering cutting-edge AI technologies at scale.”

The United States and China are fighting for technological influence in the Persian Gulf, where hundreds of billions of dollars are at stake and major investors, including Saudi Arabia, are expected to spend billions on this technology. In the rush to diversify away from oil, many of the region’s leaders have set their sights on AI – and have been happy to play the United States and China against each other.

Although the UAE is an important diplomatic and intelligence partner of the United States and one of the largest buyers of American weapons, it has increasingly expanded its military and economic ties with China. Part of his home surveillance system is built on Chinese technology and its telecommunications run on hardware from Huawei, a Chinese supplier. That has fueled concerns among U.S. officials, who often visit the Persian Gulf country to discuss security issues.

But U.S. officials also fear that the release of powerful AI technology critical to national security could potentially be used by China, or by engineers linked to the Chinese government, if it is not adequately monitored. Last month, an American The Cybersecurity Review Board sharply criticized Microsoft for a hack in which Chinese attackers gained access to the data of top officials. Any major leak – for example that of G42’s sale of Microsoft AI solutions to companies established in the region by China – would run counter to Biden administration policies that have sought to limit access to China with advanced technology.

“It’s one of the most advanced technologies the United States has,” said Gregory Allen, a researcher at the Center for Strategic and International Studies and a former U.S. defense official who has worked on AI. “There should be a very strategic justification for relocating it anywhere.”

For Microsoft, a deal with G42 offers potential access to enormous Emirati wealth. The company, whose chairman is Sheikh Tahnoon bin Zayed, the Emirates’ national security adviser and younger brother of the country’s leader, is at the heart of the Emirates’ efforts to become a major player in AI.

Despite a fanciful name taken from “The Hitchhiker’s Guide to the Galaxy,” in which the answer to “life’s ultimate question” is 42, the G42 is deeply rooted in the UAE security state. She specializes in AI and recently worked on creating an Arabic chatbot, called Jais.

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

In its letter this year, the Chinese Communist Party’s bipartisan parliamentary committee said Mr. Xiao was connected to a vast network of companies that “materially support” the technological progress of the Chinese military.

The origins of Tuesday’s deal date back to White House meetings last year, when top national security officials raised the issue with tech executives about how to encourage trade deals that would deepen U.S. ties with companies around the world, especially those that also interest China.

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

G42 would benefit from AI computing power in Microsoft’s data center in the Emirates, a 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 had already reported it. Biden administration officials have also pushed their Emirati counterparts to sever the company’s ties with China. Some officials believe the US pressure campaign has yielded results, but remain concerned about the less overt ties between the G42 and China.

A G42 executive previously worked for Chinese AI surveillance company Yitu, which has close ties to Chinese security services and runs facial recognition-based surveillance 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 led a company involved in 2019 in startup and operate a social media applicationToTok, which US intelligence agencies said was an Emirati spying tool used to harvest user data.

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

Edward Wong reports contributed.

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