China Blocks Meta's $2 Billion Acquisition of AI Firm Manus

China Blocks Meta's $2 Billion Acquisition of AI Startup Manus

China's National Development and Reform Commission has ordered the cancellation of Meta Platforms Inc.'s $2 billion acquisition of agentic AI startup Manus, a move that has sent shockwaves through the country's burgeoning AI sector. The decision, made in accordance with laws and regulations, is a surprise move to unwind a deal that has drawn fire for the leakage of technology to the US.

The ruling is likely to have a significant impact on the AI sector in China, particularly in the lead-up to a high-profile summit between US President Donald Trump and China's Xi Jinping. Beijing has tightened scrutiny of key industry firms in the wake of the deal, which has been largely completed. Initially hailed as a template for startups with global aspirations, critics have since lamented the loss of valuable technology to a geopolitical rival.

Manus's founders, Xiao Hong and Ji Yichao, got their start in China but relocated their headquarters and key staff to Singapore in 2025. The deal's cancellation raises questions about the extent to which Beijing will exert its authority over transactions that take place outside of its borders.

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The decree on Manus may deal a setback to Meta as it looks to compete in AI against rivals from Microsoft Corp. and Alphabet Inc.'s Google to OpenAI and Anthropic PBC. Manus was supposed to help Meta leapfrog into a leading position in the hot sphere of AI agents, or services that use artificial intelligence to execute tasks.

It remains unclear how Meta would unwind the deal, which has already seen Manus employees join the US firm's rapidly expanding AI team. Manus staffers have already moved into Meta offices in Singapore, while existing investors including Tencent Holdings Ltd., ZhenFund, and Hongshan have received their proceeds. Meta has stated that the deal complied with applicable laws and expected a resolution to China's investigation.

Beijing and Washington are jockeying for leverage ahead of their historic meeting in May. As rivalry heats up in the AI space, Xi is trying to both fence off China's top technology and talent from the US with the Manus move, while underscoring his growing confidence in homegrown chips. The latter point was on display last week when DeepSeek unveiled its V4 model that boasts deeper synergy with Huawei Technologies Co. chips.

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Beijing's agencies have since moved to discourage a repeat of the Manus maneuver, which was completed with unusual speed. The buyout triggered a Beijing probe into illegal foreign investment and tech exports shortly after its December announcement. Agencies including the National Development and Reform Commission have told key AI firms including Moonshot AI and Stepfun in recent weeks they should reject capital of US origin in funding rounds unless explicitly approved. Regulators have also decided on similar restrictions for ByteDance Ltd., the owner of TikTok and the most valuable startup in the country.

Those restrictions risk further isolating China's recovering tech sector from the venture backing that has underpinned it for two decades, much of which was sourced from American pensions and endowments. It follows Beijing's decision to restrict "red chips" — a type of Chinese company incorporated overseas — from seeking initial public offerings in Hong Kong, threatening to upend a decades-old playbook that helped Chinese companies tap foreign capital by floating overseas.

Launched in March 2025, Manus is a general AI agent capable of automating complex tasks, ranging from S&P 500 analysis to drafting sales pitches. A month later, its parent Butterfly Effect raised $75 million in a round led by Silicon Valley's Benchmark, valuing it at $500 million. The investment triggered a probe by the US Treasury over potential violations of restrictions on investments in sensitive technologies.

In July, Manus relocated its China-based staff to Singapore, cutting dozens of roles in the process. Meta announced its acquisition in December after Manus surpassed $100 million in annualized revenue. It remains unclear what other action Beijing will take following its investigation.