China, the US, and the battle for Middle Eastern technology

The US is changing its approach to dealing with China’s technology statecraft in the Middle East. The recent Microsoft-G42 deal offers a new model for technology competition that helps to secure American technologies while accommodating its partners’ aspirations.

China’s engagement with the Middle East is intimately intertwined with its broader global competition with the United States, which is increasingly evolving into a profound struggle for supremacy among great powers. Technological innovation has become a flashpoint in this struggle, and the rivalry has driven mutual incremental measures aimed at advancing what is commonly referred to as “technological decoupling” — a process of reducing asymmetrical dependencies and, in certain instances, disentangling the technological and cyber domains altogether. As the repercussions of this process continue to unfold, the Middle East finds itself gradually assuming a pivotal role, ensnared in the rivalry between Beijing and Washington.

With US-China competition heating up, some regional actors are choosing to make their strategic alignment on critical technologies, such as 5G, artificial intelligence (AI), and unmanned systems, clear — a trend illustrated by the mid-April Microsoft-G42 deal, in which the US tech giant agreed to invest $1.5 billion in the Abu Dhabi-based technology holding company, a growing player in the AI market. The deal’s scalability, governance, and guardrails make it a governance model that could be used with other Gulf states when it comes to AI collaboration.

Technology as a driver of the new Middle East

While the perception of the Middle East as an energy-dependent region remains strong, it is undergoing a generational transformation to shift its economies away from a reliance on hydrocarbon exports. Technology plays a key role in driving this new Middle East. For years, the region’s technological landscape has been heavily influenced by its economic and geopolitical entanglements with the United States and the broader West. However, with the resurgence of great power competition and the Middle East’s concerted efforts to foster greater economic and technological autonomy, these dynamics are undergoing a gradual but profound transformation. China is becoming increasingly integrated into the regional technological ecosystem, much to Washington’s dismay.

Amid ongoing scrutiny by the United States of Chinese technological influence over key partners in the Gulf, one company in particular has attracted the attention of American officials: the UAE’s G42. Founded in 2018, the Emirati technology holding company describes itself as dedicated to advancing the capabilities and deployment of AI, both within the UAE and beyond. G42’s companies cover a broad spectrum of industries, but each one features AI as a core facet of the business. For example, AIQ, a G42 holding, focuses on developing and commercializing AI products for the energy industry, while Bayanat and M42 apply AI to geospatial intelligence and healthcare, respectively. G42 also has a powerful investment arm, a tool it has used to acquire stakes in and secure joint ventures with foreign technology companies. The firm has extensive ties with Chinese tech entities, including partnerships with Huawei and BGI Genomics, raising concerns among some US officials about data privacy and security. The company has made significant investments in Chinese firms as well, including ByteDance, and operates a $10 billion investment fund with a Shanghai office.

G42’s engagement with China should be understood in light of two primary factors: the UAE’s pursuit of technological leadership in preparation for a post-oil era and China’s emergence as a formidable technological power capable of producing critical technologies more affordably and with a greater willingness to share intellectual property and establish joint ventures. Rather than being driven by ideology, these factors reflect Abu Dhabi’s pragmatic response to the changing global order and the evolving tech landscape. However, given the rapid shift in the bipartisan consensus in Washington on Beijing, any partnership with China is deemed unacceptable and intolerable in today’s political climate.

Based on leaks emerging from Washington, there appears to be a significant effort underway to address the G42 situation. Policymakers view the Emirati firm as a proxy for a new digital order, where China is becoming increasingly embedded in the technological ecosystem of Washington’s allies. If not confronted early on, the thinking goes, Washington may lack the power or influence to impact this trend in the long run. The US and the UAE have held discussions on the issue, as evidenced by National Security Advisor Sheikh Tahnoon bin Zayed’s visit to DC and Commerce Secretary Gina Raimondo’s visit to Abu Dhabi. Following these discussions, G42 has started to gradually phase out Chinese technologies. 42XFund, G42’s $10 billion technology investment arm, announced that it had “divested from all its investments in China.” G42 CEO Peng Xiao encapsulated the UAE’s perspective, stating, “In order for us to further our relationship — which we cherish — with our US partners, we simply cannot do much more with [previous] Chinese partners.”

Microsoft’s recently unveiled $1.5 billion investment in G42, which is also chaired by the influential royal Sheikh Tahnoon, reflects the changing landscape of global technological cooperation. This substantial venture underscores more than Microsoft’s strategic commitment to AI — it also highlights Abu Dhabi’s choice, as it navigates the intensifying great power competition between the United States and China, to strategically align the UAE with US technology. In addition, the move is consistent with reports that Sheikh Tahnoon, during a diplomatic visit to Washington, expressed a desire to foster a framework for collaboration on AI.

The significance of the Microsoft-G42 deal strongly hints at the UAE’s favorable positioning vis-a-vis the US over China in its ongoing effort to navigate the fierce competition between Washington and Beijing. Indeed, the deal indicates a choice by Abu Dhabi to align with Washington on critical technologies by replacing Chinese hardware and partnering with an American tech giant like Microsoft. As mentioned, the deal includes a “first of its kind” Intergovernmental Assurance Agreement (IGAA) between the two companies, which itself is the result of close — and likely protracted — consultation with both the US and UAE governments. The IGAA formalizes a pledge by Microsoft and G42 to enhance the security and compliance framework of their shared international infrastructure while committing to comply with US and international laws and regulations regarding trade, security, responsible AI, and business integrity. As part of this deal, Brad Smith, vice chair and president of Microsoft, will join the G42 board of directors, giving him more visibility on G42 operations, plans, and future trajectory.

A blueprint for engagement

During my recent testimony to the US-China Economic and Security Review Commission, I argued that this deal serves as a blueprint for engaging with other partners. It strikes a balance between safeguarding the US’s critical technologies and assisting our partners in developing their own capabilities. If we fail to provide these technologies, our partners may turn to Beijing to acquire what they deem necessary for their national development. Viewing the Microsoft-G42 deal as a blueprint for further cooperation also amounts to an official recognition of the significant digital transformation underway in the UAE and the broader Gulf region, transcending traditional views of Gulf economies. Moreover, it underscores my recommendation for the necessity of a comprehensive framework for technological engagement with the UAE and Saudi Arabia. Such a framework should encompass dialogue on critical technologies concerning compliance and licensing. Additionally, the United States should also establish scientific collaboration through working groups and workshops to create a shared research agenda and finance joint scientific projects.

It is premature to label such commercial partnerships as an “AI alliance,” given that countries, including the UAE, will pursue their own interests by seeking technologies that they deem critical for their security and national development. Nevertheless, the acceptance of guardrails — while quite different from forming a full-fledged alliance — is a mutually beneficial step forward in technological cooperation for the US, the UAE, and other partners in the region.

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