Microsoft scales back AI partnership with Emirati firm amid concerns over China ties

Microsoft is modifying its high-stakes plan to share sensitive AI hardware and intellectual property with Emirati AI firm G42, amid growing concerns about the company’s ties to China, according to one person familiar with the plans and two Congressional aides briefed by Microsoft.

In the last week, the Redmond-based tech giant has begun informing Congressional committees, executive branch agencies and White House staff that it plans to install greater safeguards around a sensitive part of the deal that is still under negotiation, the person familiar said.

That aspect of the $1.5 billion partnership, which was first announced in April, would have involved the transfer of sensitive technology — including advanced semiconductors and model weights, the key mathematical instructions powering proprietary AI models — to G42. The U.S. has tried to restrict China from accessing those technologies because they are viewed as critical in the race to develop the most cutting-edge AI tools.

Overseen by the UAE’s national security adviser, G42 is striving to build the world’s fastest Arabic large-language model — a powerful, multi-purpose AI system like OpenAI’s ChatGPT that is trained on enormous reams of data. The Abu Dhabi-based company has previously come under scrutiny for its partnerships with technology and surveillance firms linked to the Chinese Communist Party.

Under the new plan, Microsoft would instead lease its AI products to G42, an arrangement that will allow it to exert more oversight over any hardware and software it transfers to the UAE, the person familiar said.

Microsoft did not provide a stated rationale for the shift, they added.

But the move suggests that the U.S. tech company is bowing to growing Congressional warnings that G42’s ties to China mean the deal could allow Beijing to siphon off cutting-edge tech from the U.S.

“It’s clear Microsoft is having to change gears in light of all this controversy,” said the individual.

Microsoft declined to comment for this story. Spokespeople for the National Security Council, G42 and the UAE Embassy in Washington did not respond to a request for comment.

A spokesperson for the majority staff on the House China Committee and a Congressional aide from a separate office confirmed they were briefed last week by Microsoft and received similar details about the change of plans. The congressional aide and the person familiar with the plans were granted anonymity as a condition of sharing details about sensitive negotiations.

The Biden administration previously endorsed the deal announced in April as a way to pry G42 away from China. G42 firm promised to cut ties with Chinese tech and investment firms in exchange for access to Microsoft cloud and AI technology.

But the partnership has since come under steady fire from GOP China hawks, who argued that the more sensitive second phase could expose critical intellectual property to Beijing and was progressing without adequate government oversight.

Earlier this month, Reps. Michael McCaul (R-Texas) and John Moolenaar (R-Mich.), the chairs of the House Foreign Affairs and China panels, sent a letter to National Security Adviser Jake Sullivan urging him to order a comprehensive intelligence community review of G42’s ties to Beijing.

The change of plans from Microsoft also comes shortly after the House China Committee accused the Emirati ambassador to the U.S., Yousef Al Otaiba, of “personally intervening” to cancel a planned meeting between congressional staff and representatives of G42 in the UAE last week.

The move inflamed the committee, one of the leading congressional skeptics of the deal.

In a statement to POLITICO, the GOP spokesperson for the House China panel praised Microsoft for being candid and transparent with Congress about the deal. They also celebrated the firm’s decision to weigh new safeguards for it.

“After we relayed national security concerns to the White House, Microsoft proactively adjusted the terms of its deal with G42 to ensure key American technology is not directly handed over to potentially problematic actors with close ties to the CCP,” they said.

The prior negotiations for the transfer of advanced semiconductors to the UAE would have required an export license from the Commerce Department. It is unclear whether the revised plan would also require that approval.

A spokesperson for Commerce declined to comment when asked whether they had also been briefed about Microsoft’s new plans.