China-U.S. Tech Rivalry Enters into the Gulf States
-
Deputy Director, Hong Kong Research Center for Asian Studies
The US-China rivalry is the most dominant aspect of 21st-century geopolitics, significantly impacting the world. It has expanded across various fields and geographies. The Gulf region, which was mainly absorbing the geopolitical heat of this rivalry, has also witnessed it in the technological sphere, especially artificial intelligence (AI). Two larger projects, G42 in the UAE and the King Abdullah University of Science and Technology (KAUST) in Saudi Arabia, are particularly notable.
In April 2024, UAE’s G42 finally signed a deal with a US giant, Microsoft, which will make a US$1.5 billion in investment in the Emirate. As a part of the deal, G42 will phase out Chinese hardware and cut businesses with Chinese entities. Yousef Al Otaiba, the UAE ambassador to the US, termed the deal a ‘culmination of comprehensive strategic partnership’ at the ‘government-to-government’ level.
The G42 was created in 2018 and is headed by Tahnoun bin Zayed Al Nahyan, a prominent member of the royal family and National Security Advisor. It has a range of AI projects. It sells AI services, builds supercomputers, develops a large language model for use in generative AI and started working on cloud computing and chip building. For the initial years, G42 partnered with Microsoft and OpenAI as well as Chinese technology companies.
Since the G42 relies on semiconductors made by US chipmaker Nvidia, US officials were concerned that the company might become a backchannel door for China to access US technology. In January, the US House Select Committee on the Chinese Communist Party asked the Department of Commerce to investigate G42, citing suspicions of ties to blacklisted Chinese entities. The request followed months of quiet U.S. pressure on the issue. American officials reportedly told their UAE counterparts that for sensitive emerging technologies, the Emirates must choose between its close ally, the US, and China. White House officials reportedly voiced their concerns about G42’s deepening links with China directly with Sheikh Tahnoun bin Zayed, the company’s chairperson. If those concerns were not addressed, the US warned, it could put G42 on the Entity List, a similar list to the one Huawei was placed on in 2019, thereby barring it from acquiring critical US technologies.
Faced with a binary choice, G42 made a final choice and publicly announced that its investment arm has fully divested from Chinese companies, including a significant $100 million stake in ByteDance, the controversial app TikTok’ owner.
In the case of the UAE, the G42 incident stands out as the most significant occurrence in which US officials explicitly applied pressure and directly intervened in the matter.
The other notable event of clear US pressure was the distance of King Abdullah University of Science and Technology (KAUST) from Chinese companies. KAUST is known in fields such as telecommunications, semiconductors, energy and environmental engineering, artificial intelligence, materials design, computer science, and bioscience. It has signed agreements with academic institutes in Shenzhen. In fact, in Saudi Arabia, KAUST has the largest number of research projects and partnerships with China. In 2023, KAUST released AceGPT, an Arabic large language model for powering generative AI bots, which was developed in collaboration with the Chinese University of Hong Kong’s Shenzhen Research Institute of Big Data. Most significantly, KAUST developed advanced supercomputers in the region, which required thousands of microchips manufactured by Nvidia, the leading producer of high-performance chips utilized in AI. As KAUST hosted the largest number of Chinese scholars and students on the one hand and heavily relied on US technologies on the other, US officials feared that students and professors from Chinese military-linked universities would use the university platform to sidestep US sanctions and boost China in the race for A.I. supremacy.
The university’s substantial chip purchase, estimated to exceed $100 million in value, faced delays due to a review by the US government. The US, which could generally share technology with Saudi Arabia, a critical ally in the region, began to raise security concerns and risks as the Kingdom’s links with China expanded. Against the backdrop of increasing US pressure, Saudi universities made explicit declarations to strictly comply with all US export license terms and conditions.
Given the pivotal role of AI in shaping the future, the intensity of competition in this domain may surpass other dimensions of the US-China rivalry. In October 2022, the US implemented a series of export controls that severely hampered China’s future advancements in AI. Subsequently, in March of the following year, Japan and the Netherlands also imposed restrictions on advanced semiconductor technologies and their exports. The US, Japan, and the Netherlands combined contribute approximately 90% of the equipment utilized in computer chip manufacturing facilities worldwide.
The centrality of AI and other emerging technologies in the Gulf States’ modernization drive demanded reciprocal cooperation with both US and Chinese tech companies. Arab monarchies intend to become hubs of AI talent and innovation and are therefore investing in these sectors. For instance, Saudi Arabia has established a US$40 billion investment fund dedicated to AI, with the objective of becoming the world's largest investor in this field. Riyadh is also working toward the establishment of its own AI companies. The UAE’s AI sector is even more advanced. In 2017, it made history by appointing the world's first AI minister; in 2020, it established the first specialized AI research university; and in 2023, it launched Falcon, a highly acclaimed open-source large language model. Over the past three years, the country has quadrupled its multinational AI workforce.
Given the necessity of cooperation with both the US and Chinese companies, the Gulf States are striving to maintain a careful balance. Gulf states are aware of the advancement of US technology as well as of its allies, the strong network of the supply chain, its strategic power (which it can use even to coerce), and its long-standing relationship with regional states. At the same time, the Gulf States are aware of China’s investment potential, enormous market, rapid advancement in the AI sector, technology transfer, local empowerment, and policy-level synergies with no strings attached. Gulf states are ‘steering clear of a diplomatic zero-sum game’ and will ‘foster partnerships with each side on a case-by-case basis, depending on which one best supports the region’s efforts to create a homegrown AI ecosystem.’
According to Denis Simon, a US-based expert on China’s higher education and science and former executive vice-chancellor of Duke Kunshan University near Shanghai, “The US and China are playing a big game on a global scale but these countries want to play with both players and not get drawn into that [US‒China rivalry].” Riyadh increasingly deals on its own terms and offers itself a neutral place for both Chinese and American companies as well as AI experts. For instance, Saudi Arabia retained control of its own technologies rather than giving Chinese companies IP rights, as China insisted.
While the media framed the G42 deal in the context of the US-China rivalry, the G42 made the decision out of its search for state-of-the-art technology, as it stated: ‘to partner with the most sophisticated AI technology companies in the world.’ Similarly, KAUST made a decision based on sophisticated US technologies. In addition to the G42 and KAUST, the UAE and Saudi Arabia governments and companies are engaged with U.S. and Chinese companies in various other projects.
In 2023, Alibaba and Saudi Telecom partnered for US$ 238 million to build cloud computer infrastructure, and Huawei set up G5 networks in the region. China’s largest internet company, Tencent, is also exploring business in Saudi Arabia and the UAE.
To conclude, the US-China tech war has entered the Gulf region, which is already rife with varied tensions. Washington’s success in G42 and the KAUST reflects the level of its influence as well as an allure to its advanced technology. While it appeared the US won, the UAE and Saudi companies made decisions that suited them. China’s rapid advancement in AI, coupled with its deepening engagement with the Gulf in different areas, indicates its future potential. Washington’s ability to gain major deals does not mean that it will have a free ride. It might face even fiercer competition with China in the Gulf region, which is capitalizing on this rivalry.