China orders Meta to unwind $2 billion purchase of AI startup Manus

China orders Meta to unwind $2 billion purchase of AI startup Manus

Reuters

5 min read

BEIJING/SINGAPORE, April 27 (Reuters) - China ordered U.S. tech giant Meta to unwind its $2 billion-plus acquisition of artificial intelligence startup Manus on Monday, as Beijing tightens scrutiny of U.S. investment in domestic startups developing frontier technologies.

The National Development and Reform Commission's move highlights China's commitment to stopping U.S. firms acquiring Chinese AI talent and intellectual property, as Washington tries to limit Chinese tech firms' access to advanced U.S. chips.

The NDRC's office for reviewing the security of foreign investments said it would "prohibit foreign investment in Manus in accordance with laws and regulations, and requires the parties involved to withdraw the acquisition transaction".

It did not name Meta or other overseas investors in Manus.

After a $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 enabled Manus' parent company, Butterfly Effect, to re-incorporate in Singapore and bypass U.S. investment restrictions on Chinese AI firms, as well as Chinese rules limiting domestic AI firms' ability to transfer their IP and capital overseas.

It was not immediately clear on what grounds China was seeking the annulment of a deal involving a Singapore-based company and how, if at all, a completed acquisition transaction would be unwound.

But analysts and lawyers said the rare move to unwind a completed deal underscores how Beijing was looking to establish its jurisdiction over cross-border transactions involving Chinese assets, shareholders or technology under its national security review regime.

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

The move comes weeks before a planned mid-May summit between U.S. President Donald Trump and Chinese President Xi Jinping in Beijing. China's commerce ministry announced a probe into the sale in January, days after Meta completed its acquisition.

Companies involved in foreign investment, technology exports, data transfers abroad and acquisitions must comply with Chinese laws and regulations, the ministry spokesperson said at the time.

"The transaction complied fully with applicable law. We anticipate an appropriate resolution to the inquiry," California-based Meta said in response to Beijing's latest move on Monday.

Meta acquired Manus to bolster its work on AI agents - tools designed to carry out complex tasks with minimal human intervention.

CROSS-BORDER TRANSACTIONS

Manus' two co-founders, CEO Xiao Hong and chief scientist Ji Yichao, were summoned to Beijing for talks with regulators in March and later barred from leaving the country, five sources familiar with the matter said.

Xiao and Ji did not respond to Reuters requests for comment. Manus staff have already moved into Meta's Singapore offices, with projects going ahead despite the exit bans on the two executives, two sources familiar with the matter said.

Beijing's move shows a regulatory analysis of an acquisition was no longer limited to the place of incorporation of the target company, said Carl Li, a partner with Chinese law firm Zhong Lun, in a post on his LinkedIn page on Monday.

"The origin of the technology, the location of core R&D, the nationality and location of the founding team, historical China operations, data flows, and the process of offshore restructuring may all become relevant," he said.

"In sensitive technology sectors, a deal may be reviewed not only as an M&A transaction, but also as a potential transfer of strategic technology, data, know-how and national security-sensitive capabilities."

The Manus order is the latest high-profile case of China blocking or challenging a cross-border transaction involving a non-China incorporated company, amid Beijing's geopolitical tensions with Washington.

Last year, China criticised Hong Kong billionaire Li Ka-shing's CK Hutchison for agreeing a $23 billion sale of dozens of ports worldwide to a consortium led by U.S. asset manager BlackRock. The deal was welcomed by U.S. President Trump.

WARNING CASE

The NDRC decision sends a stark warning to Chinese startups - especially in sensitive sectors such as technology - seeking to move operations to Singapore to access foreign capital, a practice often dubbed "Singapore washing".

"I would not say this ends Chinese companies moving to Singapore. Rather, it raises the compliance threshold," said Ben Chester Cheong, a lecturer at the Singapore University of Social Sciences.

"Companies may need to show a genuine operational shift: where management sits, where IP is owned, where R&D is conducted, where 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 does not build its own AI model, but an agent framework that operates on top of existing Western large language models.

AI has become central to strategic competition between the world's two largest economies, said Alfredo Montufar-Helu, a managing director at Ankura China Advisors.

"China is saying we will prevent foreign acquisition of assets we consider important for national security - and AI is now clearly one of them," he said.

(Reporting by Eduardo Baptista and Laurie Chen in Beijing, Kane Wu in Hong Kong, Fanny Potkin and Jun Yuan Yong in Singapore; Additional reporting by Jaspreet Singh in Bengaluru; Editing by Alexander Smith, Mark Potter and Susan Fenton)