China Blocks Meta’s AI Startup Acquisition, Raising Cross-Border Deal Risks
China’s Move to Block Meta’s AI Acquisition: Implications and Reactions
By Kane Wu, Laurie Chen and Eduardo Baptista
Beijing’s Decision and Its Immediate Impact
BEIJING/HONG KONG/SINGAPORE, April 28 (Reuters) - China's blocking of Meta's acquisition of AI startup Manus will heighten the risk for global investors looking to invest in advanced tech firms with ties to the country amid Beijing's expansion of jurisdictional reach to safeguard strategic assets.
The National Development and Reform Commission (NDRC), in a rare case, ordered on Monday that the $2-billion-plus acquisition by Meta be unwound under Beijing's national security review mechanism of foreign investments that came into effect in 2021.
The powerful state planner's move to block a China-founded and Singapore-headquartered company's takeover will discourage stake or asset transfers by homegrown companies to foreign investors without Beijing's approval, lawyers and analysts said.
Red Lines for Chinese AI and Technology
"Beijing effectively drew a bright red line that Chinese AI talent and technology are not for sale to American companies, full stop," said Han Shen Lin, Shanghai-based China country director at U.S. consultancy firm The Asia Group.
It was not immediately clear how Meta would unwind the completed acquisition of Manus, but the Wall Street Journal said on Tuesday, citing people familiar with the matter that the California-based tech giant was preparing to do so.
Meta and the NDRC did not immediately respond to a Reuters request for comment.
National Security and Industrial Concerns
On the NDRC decision, China's state-backed Global Times said on Tuesday the issue was not the location of Manus' incorporation or management team but rather "the extent of its connections to China in terms of technology, talent, and data", as well as whether the transaction could jeopardise China's industrial security and development interests.
The biggest point of contention was that Manus, an AI company built on the work of Chinese engineers and the Chinese infrastructure environment, abruptly "cut ties" with China after receiving U.S. investment, the report added.
Background on Manus and Its Founders
Manus, an agent tool built atop Western and local AI models that can autonomously execute complex tasks, was hailed last year by state media as a paragon of China's AI innovation alongside large language model-builder DeepSeek.
A year after Manus' launch, its co-founders, CEO Xiao Hong and chief scientist Ji Yichao, have been barred from leaving China after being summoned to Beijing for talks with regulators in March, sources have said.
The NDRC move comes weeks before a planned mid-May summit between U.S. President Donald Trump and Chinese President Xi Jinping in Beijing.
China Roots and Regulatory Risks
CHINA ROOTS
Manus could become a cautionary tale for Chinese AI entrepreneurs whose ambitions chafed against the Communist Party's red lines, and whose business ultimately could not survive the shifting faultlines of U.S.-China tech competition.
Although Manus did not develop its own artificial intelligence models, Beijing views AI as a sensitive sector critical to national security and has made efforts to control outbound flows of technology, IP and talent.
"This is perhaps a warning shot that having a Singapore set-up is not entirely a silver bullet. If the business still has deep China roots, Beijing may treat it as effectively domestic for sensitive transactions," said Lam Zhen Guang, a lawyer at Clyde & Co.
Investors in a China-founded business will demand real operational separation, such as IP assignment, R&D relocation, governance, and clean ownership disclosures, rather than a paper relocation, Lam said.
"For founders and VCs, the takeaway is deal certainty risk. Cross-border exits, especially to U.S. buyers, may now carry a higher China regulatory discount unless approvals and China touchpoints are solved early," Lam added.
Due Diligence and Regulatory Oversight
Meta conducted only a few weeks of due diligence to complete the acquisition in December, while neither Meta nor Manus sought Chinese regulatory approval for the deal or its relocation to Singapore, said five sources with knowledge of the matter.
At that time, Meta was in a frantic search globally for AI targets, as it aimed to compete with industry peers which had gone ahead with in-house models, said a former investor in Manus.
The Singapore relocation for Manus was necessary, the founders believed, for the company to survive amid heightened U.S.-China geopolitical tensions and increased regulatory scrutiny of tech investments, said a separate person with knowledge of the thinking of Manus.
Those moves angered senior Chinese officials, whose subsequent investigation had a chilling effect on other Chinese tech startups and investors, said the sources who declined to be named due to the sensitivity of the matter.
After the acquisition was announced in December, Manus became part of Meta and all its previous investors, including U.S.-based Benchmark Capital, China's HSG, ZhenFund and Tencent Holdings, exited the company, sources said.
Tencent declined to comment. The investment firms did not immediately respond to Reuters requests for comment.
Challenges of Unwinding the Deal
'UNSCRAMBLING THE EGGS'
The unwinding of the Manus acquisition will be complex and may involve reversing equity transfers, returning funds and requiring the deletion of transferred code, data and other intellectual property, as well as withdrawing personnel, said Andy Han, a partner at AllBright Law Offices in Qingdao.
"Fully reversing such transactions is often difficult in reality, particularly in knowledge-intensive sectors, as information already absorbed by engineers or transferred during due diligence cannot easily be undone," Han said.
Meta said on Monday the transaction complied fully with applicable law and that it would anticipate an appropriate resolution to the inquiry.
"Unscrambling the eggs is always an issue when a deal is blocked by a regulator, unless the acquire