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Microsoft plans to invest $1.5 billion in an Abu Dhabi-based artificial intelligence company, a deal that could limit Chinas influence in the Gulf region amid rising technological competition with the United States.

In a blog post Tuesday, Brad Smith, Microsoft vice chair and president, said the deal with G42 will deepen international ties for artificial intelligence while ensuring the technology follows world-leading standards for safe, trusted and responsible AI.

Our two companies will work together not only in the UAE, but to bring AI and digital infrastructure and services to underserved nations, wrote Smith, who will join G42s board of directors.

Microsoft negotiated the deal with the governments of the United States and the United Arab Emirates for more than a year to ensure all parties were comfortable with the terms, according to a person familiar with the matter, who spoke on the condition of anonymity to discuss the private talks. As part of its negotiations with the U.S. government, G42 has agreed to strip Chinese gear from its operations, following concerns about its use of Huawei equipment, the person said.

AI has emerged as a flash point amid increasing tensions between the United States and China. The deal announced Wednesday positions a key American tech giant to have influence over the burgeoning AI sector in the UAE, amid concerns that China seeks to invest more in the region.

The United States regularly works with other countries to expand opportunities for U.S. businesses while balancing national security concerns, Commerce Department spokesperson Brittany Caplin said Tuesday.

That includes collaborating with countries like the UAE, a global player in cutting-edge technology, and working toward verifiable commitments on how these technologies should be safely developed, protected and deployed, she said. When responsibly managed, investments like the one announced today have the potential to further innovation in digital technologies around the world.

Lawmakers from both parties said they were encouraged by the potential of the deal to promote U.S. technological leadership.

American innovation and American values should be leading the world, and deals like this are one of the ways we accomplish that, Sen. Mark R. Warner (D-Va.), chair of the Senate Intelligence Committee, said in a statement. At the same time, we have to make sure any agreement is structured in a way that protects the crown jewels of our intellectual property.

As G42 realized it needed the commercial backing of a larger tech giant, it began talks with Microsoft in late 2022, G42 told The Washington Post in an email.

Microsoft in recent years has thrust itself to the forefront of the AI revolution by partnering with smaller companies, including a multibillion investment in OpenAI, the maker of ChatGPT. Microsoft has recently been increasing its investments outside the United States, such as a major deal with the French company Mistral. The deals have allowed Microsoft to skirt traditional antitrust scrutiny, while asserting itself as a formidable tech leader on the global stage.

Peng Xiao, group chief executive at G42, said the deal will significantly enhance his companys global presence by allowing it to build on Microsofts cloud infrastructure.

G42 told The Post it began to phase out existing Chinese components and incorporate more of Microsofts technology in 2022. In 2023, G42 began discussions with the U.S. Commerce Department, following a more formal collaboration with Microsoft. In April 2023, they announced a joint plan to create artificial intelligence solutions using Microsofts Azure cloud system, and later agreed to introduce AI tools that meet the complicated security needs of government users. And in November, Microsoft made G42s Arabic AI language model, called Jais, available on its cloud.

G42 has been subject to congressional scrutiny over its close ties to China.

In a Jan. 4 letter to Commerce Secretary Gina Raimondo, a congressional committee asked her agency to consider export controls on G42 and several related companies.

In the letter, the House Select Committee on the Chinese Communist Party states that Xiao is affiliated with an expansive network of companies that support the Chinese military and enable its human-rights abuses.

It also states that Xiao served in a leadership position with a subsidiary of the UAE-based company DarkMatter. DarkMatter develops spyware and surveillance tools that can be used to spy on dissidents, journalists, politicians, and U.S. companies, according to the letter.

In addition to hacking and spying on UAE dissidents, DarkMatter drove division in the U.S. government by hiring some Americans while hacking others. Three former U.S. intelligence operatives admitted illegal conduct in 2021, prompting legislation to limit where similar veterans could work.

Rep. Mike Gallagher (R-Wis.), the committee chairman, later said he was satisfied with G42s decision to sell its stake in Chinese companies.

The UAE is a critical and powerful ally, one that will only become more important for regional and global stability as AI advances, Gallagher said in February. Therefore, it is imperative the United States and the UAE further understand and mitigate any high-risk commercial and research relationships with [Peoples Republic of China] entities, he added.

Joseph Menn contributed to this report.

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Microsoft invests in Arabic AI firm as U.S. tries to limit China's sway - The Washington Post