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Tesla’s Pivot to China Saved Musk. It Also Binds Him to Beijing.

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When Elon Musk unveiled the first Chinese-made Teslas in Shanghai in 2020, he went off script and started dancing. Peeling off his jacket, he flung it across the stage in a partial striptease.

Mr. Musk had reason to celebrate. A few years earlier, with Tesla on the brink of failure, he had bet on China, which offered cheap parts and capable workers — and which needed Tesla as an anchor to jump-start its fledgling electric vehicle industry.

For Chinese leaders, the prize was a Tesla factory on domestic soil. Mr. Musk would build one in Shanghai that would become a flagship, accounting for over half of Tesla’s global deliveries and the bulk of its profits.

Mr. Musk initially seemed to have the upper hand in the relationship, securing concessions from China that were rarely offered to foreign businesspeople. But in a stark shift, Tesla is now increasingly in trouble and losing its edge over Chinese competitors in the very market he helped create. Tesla’s China pivot has also tethered Mr. Musk to Beijing in a way that is drawing scrutiny from U.S. policymakers.

Interviews with former Tesla employees, diplomats and policymakers reveal how Mr. Musk built an unusually symbiotic relationship with Beijing, profiting from the Chinese government’s largess even as he reaped subsidies in the United States.

As Mr. Musk explored building the factory in Shanghai, Chinese leaders agreed to a crucial policy change on national emissions regulations, following lobbying by Tesla that was not previously reported. That change directly benefited Tesla, bringing in an estimated hundreds of millions of dollars in profits as China production took off, The New York Times found.

Mr. Musk also gained unusual access to senior leaders. He worked closely with a top Shanghai official who is now the premier, Li Qiang. The Shanghai factory went up at lightning speed and without a local partner, a first for a foreign auto company in China.

Mr. Musk, who has insinuated that American workers are lazy, got employees accustomed to long hours, without the strong protections that have led U.S. and European regulators to scrutinize Tesla and unions to target it for organizing. After a Tesla worker in Shanghai was crushed to death last year, a report citing safety gaps was taken offline.

And he got the emissions policy. Modeled after a California program that has been a boon for Tesla, the policy awards automakers credits for making clean cars. To lobby for the regulatory change, Tesla teamed up with California environmentalists, who were trying to clean up China’s soupy skies.

China helped make Tesla the most valuable car company in the world. But Tesla’s success there also forced homegrown brands to innovate. China is now churning out cheap but well-made electric cars, as the Chinese leader Xi Jinping aims to transform the country into an “automotive power.” Chinese automakers like BYD and SAIC are pushing into Europe, threatening established carmakers like Volkswagen, Renault and Stellantis. Detroit is also scrambling to keep pace.

“There’s Before Tesla and After Tesla,” said Michael Dunne, an auto consultant and a former General Motors executive in Asia, about the company’s effect on Chinese industry. “Tesla was the rainmaker.”

Mr. Musk is now treading a fine line. He has sounded the alarm about Chinese rivals, even as he remains reliant on the Chinese market and supply chain and repeats Beijing’s geopolitical talking points.

He warned in January that unless the Chinese auto brands were blocked by trade barriers, they would “pretty much demolish most other car companies in the world.” Earlier this month, Tesla’s share price plunged following lagging China sales, causing him to lose the title of richest man in the world.

The company is so ensconced in China that Mr. Musk cannot easily extricate himself, should he ever want to. Teslas cost significantly less to make in Shanghai than elsewhere, a key saving when the company is in a price war with its competitors.

On Capitol Hill, lawmakers are studying his ties to China and how he balances Tesla with his other endeavors. SpaceX, another company he owns, has lucrative Pentagon contracts and boasts near total control of the world’s satellite internet through its Starlink network. He also owns the social media platform X, which China has used for disinformation campaigns.

“Elon Musk has deep financial exposure to China — including his plant in Shanghai,” said Sen. Mark Warner, a Democrat who chairs the Senate Intelligence Committee.

It’s not clear whether Beijing has sought to exert leverage over Mr. Musk, but leaders have levers they could pull. Last year, several Chinese localities banned Teslas from sensitive areas, prompting the automaker to emphasize that all Chinese data is held locally. And in February, after the Commerce Department announced an investigation into data retention by Chinese electric vehicles, the Global Times, a Communist Party newspaper, warned that Chinese consumers could retaliate against Tesla.

Mr. Musk has taken China’s side in several international disputes. He has made China’s case for why it should control Taiwan, the self-governed island democracy that has resisted Beijing’s claims. (Taiwan is now building an alternative to Starlink, in part because of concerns about Mr. Musk’s ties.)

Mr. Musk has reportedly argued that there are two sides to repression in Xinjiang, home to the predominantly Muslim Uyghurs. In 2021, as other companies were pulling back from Xinjiang, Tesla unveiled a charging line ending there, which it called the Tesla Silk Road, after the historic route that has been revived by Mr. Xi in a campaign for global influence. The company has a similar charging line to Tibet.

Tesla, SpaceX and Mr. Musk did not reply to a detailed list of questions and findings. At The New York Times’s DealBook Summit on Nov. 29, Mr. Musk said that “every car company” relies in part on the Chinese market. He also dismissed concerns surrounding SpaceX and Starlink, saying they did not operate in China and that his companies should not be conflated.

But in an online conversation with two members of Congress in July, he was more direct. He acknowledged having “some vested interests” in China, and described himself as “kind of pro-China.”

In California, Tesla has enjoyed strong regulatory support. Since 2008, when it unveiled its first car, the company has earned cash under the state’s emissions mandate by selling credits to automakers that could not meet pollution targets. Those credits were worth $3.71 billion by late 2023, according to Gov. Gavin Newsom’s office.

Mr. Musk has downplayed Tesla’s reliance on government help, but Alberto Ayala, a former emissions regulator for California, said that the policy helped Tesla survive when it was struggling. “That is what kept the company afloat.”

Another former state regulator, Craig Segall, said that Tesla lobbied extensively on the emissions regulations, seeking to skew them in a way that enriched Tesla.

In China, the company aimed to recreate California’s lucrative policy.

As California built ties with China, several groups were championing an emissions mandate as a cure for its pollution. Among the policy’s enthusiasts was then-Gov. Jerry Brown, who saw electric vehicles as a potential area of cooperation. Environmentalists were on board as well.

In 2014, as Mr. Musk talked about setting up a factory in China, Tesla joined the groups in pushing for a change.

Grace Tao, a Tesla lobbyist, met with people at the Innovation Center for Energy and Transportation, an environmental nonprofit based in Los Angeles and Beijing. The group, also known as iCET, had approached Tesla. They talked about working together on an emissions mandate in the country, according to notes taken by the nonprofit and shared with The Times.

“They needed that to be successful in China,” Feng An, iCET’s executive director, said about Tesla. But Chinese officials were initially skeptical, he added, because the policy would effectively require traditional automakers to subsidize E.V. companies like Tesla.

His group helped plan meetings with Ken Morgan, then a U.S.-based Tesla lobbyist, according to event materials and emails obtained by The Times. In 2015, Mr. Morgan met with officials in three Chinese cities, touting how California’s emissions mandate had helped spur E.V. production. (Ms. Tao and Mr. Morgan, who recently left Tesla, did not respond to questions.)

Local officials were keen to persuade Tesla to build a factory in their cities. That interest could “potentially be leveraged” to promote a mandate, Maya Ben Dror, who worked for iCET at the time, wrote in an email to Mr. Morgan.

Dr. An said he took two groups of Chinese city officials to visit Tesla’s office in California, adding that neither Tesla nor Mr. Musk gave iCET any money. He and Dr. Ben Dror saw the emissions scheme as sound environmental policy.

The priorities of the environmentalists and Chinese officials often differed. In the West, clean transportation was seen as a “tree-hugging kind of issue, while in China it was from the start seen as an industrial issue,” said Ilaria Mazzocco, a senior fellow at the Center for Strategic and International Studies who studied the emissions policy discussions.

But as an innovative green business, Tesla checked both boxes.

In 2015, at a clean transportation conference in California, Chinese central government officials listened as a Tesla lobbyist laid out the reasons that Beijing should adopt an emissions mandate, said Yunshi Wang, an energy economist who organized the session.

“Obviously Tesla was all in,” said Mr. Wang, director of the China Center for Energy and Transportation at the University of California, Davis.

The emissions mandate eventually appealed to the officials, too. The existing government subsidy system was rife with fraud. The mandate was more efficient and would save the government money.

In 2017, China adopted the policy.

It was Tesla’s first big win there.

Mr. Musk did not want to share ownership of Tesla’s factory with a Chinese company, as was required at the time. So in 2018 officials revoked the rule for all foreign electric car companies. The change was Tesla’s second big win.

Soon after, Shanghai beat out other cities competing for Tesla’s factory. Mr. Li, then Shanghai’s top leader, became a key ally. He had visited Tesla in California, on a trip that also included a meeting with Governor Brown, Mr. Xi and others about climate cooperation.

Mr. Musk proposed constructing the factory in two years, state media reported. Mr. Li countered that they could do it in one — a goal that his government met.

“This was even faster than China speed,” said Tu Le, who heads the consultancy Sino Auto Insights, adding that Mr. Li’s help was key: “How quickly things happened points to his tacit approval of everything.”

Government officials used “very creative yet cautious approaches” to bend policy to Tesla’s wishes, Ms. Tao told Yicai Global, a Chinese media outlet, adding that she was “deeply impressed.”

At least twice, Mr. Musk and his team were allowed to drive Teslas into Zhongnanhai, the Communist Party leadership’s walled compound in Beijing.

Under Mr. Li’s watch, state-run banks offered Tesla over 11 billion yuan ($1.5 billion) in low-interest loans. The deal was so generous that Huang Yonghe, a senior official with a government-owned auto industry group, recalled one government minister balking at it.

“He said the Shanghai leaders were unbelievable — giving away the entire investment without Tesla having to spend a penny,” Mr. Huang said in an interview.

But Mr. Huang said the deal made sense for the banks.

He had long been impressed by Tesla, at one point importing a car and disassembling it to study how it worked. Like Mr. Li, he had visited the Tesla factory in Fremont, Calif., which had struck him as chaotic but promising.

China could improve on it, he thought, yielding an efficient foreign factory that would serve as a “catfish,” an aggressive creature that makes other fish swim faster.

Tesla also created a market for Chinese suppliers, saying recently that 95 percent of components used in the Shanghai factory are locally sourced.

One key supplier is a once-obscure battery company. In the United States, Tesla had a partnership with Panasonic, but in China it switched to mainly using batteries from CATL, which built a factory near Tesla’s. Today, buoyed in part by Tesla’s business, CATL is the world’s largest battery maker.

Another supplier, LK Group, developed enormous casting machines that can make an entire section of a car with Tesla’s help. The company’s founder, Liu Siong Song, told The Times in 2021 that LK planned to supply the machines to six Chinese companies.

That year, he said that he hoped the technology would “help our country’s automotive industry become bigger and stronger,” linking it to Mr. Xi’s “Chinese dream” of national resurgence.

Before the Shanghai plant opened, Fremont was Mr. Musk’s principal factory. He sometimes slept on the factory floor to model the intensity he expected of his employees.

In China, workers were accustomed to long workweeks, a fact that Mr. Musk saw as an advantage.

The Shanghai plant’s schedule involves an unusual weekly change in shifts. According to two former employees, workers there pull four straight 12-hour day shifts, followed by two days of rest, before switching to four 12-hour night shifts. (Fremont employees typically work seven 12-hour shifts over two weeks.)

As the coronavirus pandemic spread in 2020, the Fremont factory was shuttered for nearly two months.

But the Shanghai plant closed for only about two weeks, helping Tesla turn a profit for the first time and causing Mr. Musk’s wealth to surge.

China has also offered Mr. Musk an escape from California’s strict labor protections.

During Shanghai’s 2022 lockdown, some Tesla workers slept on the factory floor. They were paid extra to continue working, but Tesla demanded six twelve-hour shifts in a row, the two workers said. (Employees who chose not to work were also paid, but less than their normal salary.)

Chinese workers “won’t even leave the factory,” Mr. Musk said at the time, speaking generally, adding, “whereas in America people are trying to avoid going to work at all.”

In Fremont, accidents have set off regulatory investigations. But in Shanghai, when the Tesla worker was crushed to death by machinery last year, a report published by city authorities citing safety gaps was taken down shortly after it went online.

The Shanghai government bureau that released the report did not respond to faxed questions.

China’s vision of Tesla being a catfish for local electric vehicle brands has proved prescient. BYD, a top Chinese rival, overtook Tesla in worldwide sales late last year.

But China’s electric vehicle push has prompted anxiety in Europe. “When we decided to shift from thermic engines to E.V.s, we were late vis-à-vis China — I would say between five and seven years late,” said Bruno Le Maire, France’s finance minister.

In September the European Union started an inquiry into whether Chinese policies give electric vehicle brands there an unfair edge. Although Tesla is not technically under investigation, it could face tariffs on cars exported from China.

In the United States, the Biden administration pushed through the Inflation Reduction Act in an attempt to compete. The White House is now considering raising tariffs on Chinese electric vehicles, which are already at 25 percent.

California officials reject the idea that Tesla’s rise in China has been bad for the state. “It’s not really a zero-sum game,” said David Hochschild, chair of the California Energy Commission, who said he saw “robust growth” ahead in E.V.s for both sides.

But Shanghai has replaced Fremont as Tesla’s global export hub, sending more than 175,000 cars to Europe from China last year, according to Schmidt Automotive Research.

And while the Chinese emissions program brought in hundreds of millions of dollars in credits for Tesla, according to the market analysis company CRU Group, the price of credits is dropping because Chinese companies are manufacturing more electric cars.

“We have reached the tipping point,” said Lei Xing, an independent auto analyst focused on China.

Despite rising competition, Mr. Musk remains strong in the country.

In October 2022, Mr. Li, the former Shanghai leader, was promoted to the country’s No. 2 spot. Mr. Musk is also building a battery factory in Shanghai, which a state-owned research firm said last year would use CATL cells. When Mr. Musk traveled to China last May, the battery maker’s chairman welcomed him with a 16-course banquet. At his side for at least part of the trip was Ms. Tao, the lobbyist, who had risen to the post of vice president at Tesla. (CATL did not respond to questions.)

Even the plant Tesla is building in Nuevo León, Mexico, will use Chinese suppliers, several of whom the state governor has said will set up factories nearby.

Late last year, Mr. Musk attended an exclusive reception for Mr. Xi in San Francisco.

On Weibo, a Chinese social platform, Mr. Musk posted a photo of him shaking hands with the Chinese leader. “May there be prosperity for all,” he wrote.

Keith Bradsher, David A. Fahrenthold, Eric Lipton and James Wagner contributed reporting. Susan C. Beachy, Kitty Bennett and Kirsten Noyes contributed research.

Audio produced by Sarah Diamond.



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The Paris Olympics’ One Sure Thing: Cyberattacks

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In his office on one of the upper floors of the headquarters of the Paris Olympic organizing committee, Franz Regul has no doubt what is coming.

“We will be attacked,” said Mr. Regul, who leads the team responsible for warding off cyberthreats against this year’s Summer Games in Paris.

Companies and governments around the world now all have teams like Mr. Regul’s that operate in spartan rooms equipped with banks of computer servers and screens with indicator lights that warn of incoming hacking attacks. In the Paris operations center, there is even a red light to alert the staff to the most severe danger.

So far, Mr. Regul said, there have been no serious disruptions. But as the months until the Olympics tick down to weeks and then days and hours, he knows the number of hacking attempts and the level of risk will rise exponentially. Unlike companies and governments, though, who plan for the possibility of an attack, Mr. Regul said he knew exactly when to expect the worst.

“Not many organizations can tell you they will be attacked in July and August,” he said.

Worries over security at major events like the Olympics have usually focused on physical threats, like terrorist attacks. But as technology plays a growing role in the Games rollout, Olympic organizers increasingly view cyberattacks as a more constant danger.

The threats are manifold. Experts say hacking groups and countries like Russia, China, North Korea and Iran now have sophisticated operations capable of disabling not just computer and Wi-Fi networks but also digital ticketing systems, credential scanners and even the timing systems for events.

Fears about hacking attacks are not just hypothetical. At the 2018 Pyeongchang Winter Olympics in South Korea, a successful attack nearly derailed the Games before they could begin.

That cyberattack started on a frigid night as fans arrived for the opening ceremony. Signs that something was amiss came all at once. The Wi-Fi network, an essential tool to transmit photographs and news coverage, suddenly went down. Simultaneously, the official Olympics smartphone app — the one that held fans’ tickets and essential transport information — stopped functioning, preventing some fans from entering the stadium. Broadcast drones were grounded and internet-linked televisions meant to show images of the ceremony across venues went blank.

But the ceremony went ahead, and so did the Games. Dozens of cybersecurity officials worked through the night to repel the attack and to fix the glitches, and by the next morning there was little sign that a catastrophe had been averted when the first events got underway.

Since then, the threat to the Olympics has only grown. The cybersecurity team at the last Summer Games, in Tokyo in 2021, reported that it faced 450 million attempted “security events.” Paris expects to face eight to 12 times that number, Mr. Regul said.

Perhaps to demonstrate the scale of the threat, Paris 2024 cybersecurity officials use military terminology freely. They describe “war games” meant to test specialists and systems, and refer to feedback from “veterans of Korea” that has been integrated into their evolving defenses.

Experts say a variety of actors are behind most cyberattacks, including criminals trying to hold data in exchange for a lucrative ransom and protesters who want to highlight a specific cause. But most experts agree that only nation states have the ability to carry out the biggest attacks.

The 2018 attack in Pyeongchang was initially blamed on North Korea, South Korea’s antagonistic neighbor. But experts, including agencies in the U.S. and Britain, later concluded that the true culprit — now widely accepted to be Russia — deliberately used techniques designed to pin the blame on someone else.

This year, Russia is once again the biggest focus.

Russia’s team has been barred from the Olympics following the country’s 2022 invasion of Ukraine, although a small group of individual Russians will be permitted to compete as neutral athletes. France’s relationship with Russia has soured so much that President Emmanuel Macron recently accused Moscow of attempting to undermine the Olympics through a disinformation campaign.

The International Olympic Committee has also pointed the finger at attempts by Russian groups to damage the Games. In November, the I.O.C. issued an unusual statement saying it had been targeted by defamatory “fake news posts” after a documentary featuring an A.I.-generated voice-over purporting to be the actor Tom Cruise appeared on YouTube.

Later, a separate post on Telegram — the encrypted messaging and content platform — mimicked a fake news item broadcast by the French network Canal Plus and aired false information that the I.O.C. was planning to bar Israeli and Palestinian teams from the Paris Olympics.

Earlier this year, Russian pranksters — impersonating a senior African official — managed to get Thomas Bach, the I.O.C. president, on the phone. The call was recorded and released earlier this month. Russia seized on Mr. Bach’s remarks to accuse Olympic officials of engaging in a “conspiracy” to keep its team out of the Games.

In 2019, according to Microsoft, Russian state hackers attacked the computer networks of at least 16 national and international sports and antidoping organizations, including the World Anti-Doping Agency, which at the time was poised to announce punishments against Russia related to its state-backed doping program.

Three years earlier, Russia had targeted antidoping officials at the Rio de Janeiro Summer Olympics. According to indictments of several Russian military intelligence officers filed by the United States Department of Justice, operatives in that incident spoofed hotel Wi-Fi networks used by antidoping officials in Brazil to successfully penetrate their organization’s email networks and databases.

Ciaran Martin, who served as the first chief executive of Britain’s national cybersecurity center, said Russia’s past behavior made it “the most obvious disruptive threat” at the Paris Games. He said areas that might be targeted included event scheduling, public broadcasts and ticketing systems.

“Imagine if all athletes are there on time, but the system scanning iPhones at the gate has gone down,” said Mr. Martin, who is now a professor at the Blavatnik School of Government at the University of Oxford.

“Do you go through with a half-empty stadium, or do we delay?” he added. “Even being put in that position where you either have to delay it or have world-class athletes in the biggest event of their lives performing in front of a half-empty stadium — that’s absolutely a failure.”

Mr. Regul, the Paris cybersecurity head, declined to speculate about any specific nation that might target this summer’s Games. But he said organizers were preparing to counter methods specific to countries that represent a “strong cyberthreat.”

This year, Paris organizers have been conducting what they called “war games” in conjunction with the I.O.C. and partners like Atos, the Games’ official technology partner, to prepare for attacks. In those exercises, so-called ethical hackers are hired to attack systems in place for the Games, and “bug bounties” are offered to those who discover vulnerabilities.

Hackers have previously targeted sports organizations with malicious emails, fictional personas, stolen passwords and malware. Since last year, new hires at the Paris organizing committee have undergone training to spot phishing scams.

“Not everyone is good,” Mr. Regul said.

In at least one case, a Games staff member paid an invoice to an account after receiving an email impersonating another committee official. Cybersecurity staff members also discovered an email account that had attempted to impersonate the one assigned to the Paris 2024 chief, Tony Estanguet.

Millions more attempts are coming. Cyberattacks have typically been “weapons of mass irritation rather than weapons of mass destruction,” said Mr. Martin, the former British cybersecurity official.

“At their worst,” he said, “they’ve been weapons of mass disruption.”

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'Bad at almost everything': AI wearable panned by reviewers

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A new AI-fuelled gadget has fallen foul of the tech world’s expectations.

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Microsoft Makes High-Stakes Play in Tech Cold War With Emirati A.I. Deal

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Microsoft on Tuesday plans to announce a $1.5 billion investment in G42, an artificial intelligence giant in the United Arab Emirates, in a deal largely orchestrated by the Biden administration to box out China as Washington and Beijing battle over who will exercise technological influence in the Gulf region and beyond.

Under the partnership, Microsoft will give G42 permission to sell Microsoft services that use powerful A.I. chips, which are used to train and fine-tune generative A.I. models. In return, G42, which has been under scrutiny by Washington for its ties to China, will use Microsoft’s cloud services and accede to a security arrangement negotiated in detailed conversations with the U.S. government. It places a series of protections on the A.I. products shared with G42 and includes an agreement to strip Chinese gear out of G42’s operations, among other steps.

“When it comes to emerging technology, you cannot be both in China’s camp and our camp,” said Gina Raimondo, the Commerce Secretary, who traveled twice to the U.A.E. to talk about security arrangements for this and other partnerships.

The accord is highly unusual, Brad Smith, Microsoft’s president, said in an interview, reflecting the U.S. government’s extraordinary concern about protecting the intellectual property behind A.I. programs.

“The U.S. is quite naturally concerned that the most important technology is guarded by a trusted U.S. company,” said Mr. Smith, who will take a seat on G42’s board.

The investment could help the United States push back against China’s rising influence in the Gulf region. If the moves succeed, G42 would be brought into the U.S. fold and pare back its ties with China. The deal could also become a model for how U.S. firms leverage their technological leadership in A.I. to lure countries away from Chinese tech, while reaping huge financial awards.

But the matter is sensitive, as U.S. officials have raised questions about G42. This year, a congressional committee wrote a letter urging the Commerce Department to look into whether G42 should be put under trade restrictions for its ties to China, which include partnerships with Chinese firms and employees who came from government-connected companies.

In an interview, Ms. Raimondo, who has been at the center of an effort to prevent China from obtaining the most advanced semiconductors and the equipment to make them, said the agreement “does not authorize the transfer of artificial intelligence, or A.I. models, or GPUs” — the processors needed to develop A.I. applications — and “assures those technologies can be safely developed, protected and deployed.”

While the U.A.E. and United States did not sign a separate accord, Ms. Raimondo said, “We have been extensively briefed and we are comfortable that this agreement is consistent with our values.”

In a statement, Peng Xiao, the group chief executive of G42, said that “through Microsoft’s strategic investment, we are advancing our mission to deliver cutting-edge A.I. technologies at scale.”

The United States and China have been racing to exert technological influence in the Gulf, where hundreds of billions of dollars are up for grabs and major investors, including Saudi Arabia, are expected to spend billions on the technology. In the rush to diversify away from oil, many leaders in the region have set their sights on A.I. — and have been happy to play the United States and China off each other.

Although the U.A.E. is an important U.S. diplomatic and intelligence partner, and one of the largest buyers of American weapons, it has increasingly expanded its military and economic ties with China. A portion of its domestic surveillance system is built on Chinese technology and its telecommunications work on hardware from Huawei, a Chinese supplier. That has fed the worries of U.S. officials, who often visit the Persian Gulf nation to discuss security issues.

But U.S. officials are also concerned that the spread of powerful A.I. technology critical to national security could eventually be used by China or by Chinese government-linked engineers, if not sufficiently guarded. Last month, a U.S. cybersecurity review board sharply criticized Microsoft over a hack in which Chinese attackers gained access to data from top officials. Any major leak — for instance, by G42 selling Microsoft A.I. solutions to companies set up in the region by China — would go against Biden administration policies that have sought to limit China’s access to the cutting-edge technology.

“This is among the most advanced technology that the U.S. possesses,” said Gregory Allen, a researcher at the Center for Strategic and International Studies and a former U.S. defense official who worked on A.I. “There should be very strategic rationale for offshoring it anywhere.”

For Microsoft, a deal with G42 offers potential access to huge Emirati wealth. The company, whose chairman is Sheikh Tahnoon bin Zayed, the Emirates’ national security adviser and the younger brother of the country’s ruler, is a core part of the U.A.E.’s efforts to become a major A.I. player.

Despite a name whimsically drawn from “The Hitchhiker’s Guide to the Galaxy,” in which the answer to the “ultimate question of life” is 42, G42 is deeply embedded in the Emirati security state. It specializes in A.I. and recently worked to build an Arabic chatbot, called Jais.

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

In its letter this year, the bipartisan House Select Committee on the Chinese Communist Party said Mr. Xiao was connected to an expansive network of companies that “materially support” the Chinese military’s technological advancement.

The origins of Tuesday’s accord go back to White House meetings last year, when top national security aides raised the question with tech executives of how to encourage business arrangements that would deepen U.S. ties to firms around the world, especially those China is also interested in.

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

G42 would get use of A.I. computing power in Microsoft’s data center in the U.A.E., sensitive technology that cannot be sold in the country without an export license. Access to the computing power would likely give G42 a competitive edge 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 A.I. technology to G42.

American intelligence officials have raised concerns about G42’s relationship to China in a series of classified assessments, The New York Times previously reported. Biden administration officials have also pushed their Emirati counterparts to cut the company’s ties to China. Some officials believe the U.S. pressure campaign has yielded some results, but remain concerned about less overt ties between G42 and China.

One G42 executive previously worked at the Chinese A.I. surveillance company Yitu, which has extensive ties to China’s security services and runs facial-recognition powered monitoring across the country. The company has also had ties to a Chinese genetics giant, BGI, whose subsidiaries were placed on a blacklist by the Biden administration last year. Mr. Xiao also led a firm that was involved in 2019 in starting and operating a social media app, ToTok, that U.S. intelligence agencies said was an Emirati spy tool used to harvest user data.

In recent months, G42 has agreed to walk back some of its China ties, including divesting a stake it took in TikTok owner ByteDance and pulling out Huawei technology from its operations, according to U.S. officials.

Edward Wong contributed reporting.

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