China Orders Meta to Unwind USD 2 Billion AI Startup Acquisition

China ordered U.S. tech giant Meta to unwind its acquisition of artificial intelligence startup Manus on Monday, a deal valued at more than USD 2 billion. This directive comes as Beijing intensifies scrutiny of foreign investment in domestic startups developing frontier technologies.

Credit: UNSPLASH

The National Development and Reform Commission (NDRC) stated its commitment to preventing U.S. firms from acquiring Chinese AI talent and intellectual property. This action aligns with Washington’s efforts to restrict Chinese tech firms’ access to advanced U.S. chips.

The NDRC’s office for reviewing foreign investment security announced it would "prohibit foreign investment in Manus in accordance with laws and regulations, and requires the parties involved to withdraw the acquisition transaction." Meta was not explicitly named in this statement.

After a USD 75 million fundraising round led by U.S. venture firm Benchmark in May 2025, Manus shut its China offices in July, laying off dozens of employees. It then moved its operations to Singapore.

This move allowed Manus’s parent company, Butterfly Effect, to re-incorporate in Singapore. The restructuring aimed to bypass U.S. investment restrictions on Chinese AI firms and Chinese rules limiting domestic AI firms’ ability to transfer intellectual property and capital overseas.

California-based Meta stated the transaction fully complied with applicable law and expressed anticipation of an appropriate resolution to the inquiry, in response to Beijing's latest move on Monday. The company acquired Manus to enhance its work on AI agents, which are tools designed to carry out complex tasks with minimal human intervention.

China’s commerce ministry announced a probe into the sale in January, days after Meta completed its acquisition. A ministry spokesperson previously stated that companies involved in foreign investment, technology exports, data transfers abroad, and acquisitions must comply with Chinese laws and regulations.

Xiao Hong, Manus’s chief executive officer, and Ji Yichao, its chief scientist, were summoned to Beijing for talks with regulators in March. Both co-founders were later barred from leaving the country, according to five sources familiar with the matter.

Despite the exit bans on its executives, Manus staff have relocated to Meta’s Singapore offices, and projects are proceeding, according to two sources familiar with the matter. Analysts and lawyers said the rare move to unwind a completed deal underscores Beijing’s intent to assert jurisdiction over cross-border transactions involving Chinese assets, shareholders, or technology under its national security review regime.

Weiheng Chen, senior partner and head of Greater China at law firm Wilson Sonsini, noted that China’s national security clearance will become "a regular closing condition for cross-border tech deals."

Carl Li, a partner with Chinese law firm Zhong Lun, commented in a post on his LinkedIn page on Monday that regulatory analysis of an acquisition is no longer confined to the target company’s place of incorporation. He added that the origin of technology, location of core research and development, nationality and location of the founding team, historical China operations, data flows, and offshore restructuring process may all become relevant.

Li further suggested that in sensitive technology sectors, a deal may be reviewed not only as a merger and acquisition transaction. It could also be considered a potential transfer of strategic technology, data, know-how, and national security-sensitive capabilities.

This order is China’s latest high-profile action to challenge a cross-border transaction involving a non-China incorporated company, amidst geopolitical tensions with Washington. China previously criticised Hong Kong billionaire Li Ka-shing’s CK Hutchison for agreeing a USD 23 billion sale of ports worldwide to a consortium led by U.S. asset manager BlackRock.

The NDRC’s decision serves as a significant warning to Chinese startups, especially in sensitive sectors like technology, that seek to move operations to Singapore to access foreign capital. This practice is often referred to as "Singapore washing."

Ben Chester Cheong, a lecturer at the Singapore University of Social Sciences, stated this action raises the compliance threshold rather than ending such moves. He suggested companies may need to demonstrate a genuine operational shift, including where management sits, intellectual property is owned, research and development is conducted, data is stored, and whether Chinese regulatory approvals are needed.

Manus was hailed early last year by state media and commentators as China’s next DeepSeek after releasing what it said was the world's first general AI agent. The company develops an agent framework that operates on top of existing Western large language models, rather than building its own AI model.

Alfredo Montufar-Helu, a managing director at Ankura China Advisors, highlighted that AI has become central to strategic competition between the world’s two largest economies. He explained that China is asserting it will prevent foreign acquisition of assets deemed important for national security, with AI now clearly among them.

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• China has ordered U.S. tech giant Meta to unwind its acquisition of AI startup Manus, a deal exceeding USD 2 billion.

• The National Development and Reform Commission cited concerns over foreign acquisition of Chinese AI talent and intellectual property.

• Manus had relocated its operations and parent company to Singapore, attempting to bypass investment restrictions.

Source: REUTERS