China blocks Meta’s $2bn AI startup deal, orders withdrawal over national security concerns

China has ordered Meta Platforms to unwind its acquisition of AI startup Manus, a deal valued at more than $2 billion, marking one of Beijing’s most assertive interventions yet in cross-border technology transactions involving sensitive artificial intelligence assets.

The directive was issued by the National Development and Reform Commission, which said foreign investment in Manus would be prohibited under Chinese law and required all parties to withdraw from the transaction. The move comes as Beijing intensifies scrutiny over overseas participation in domestic startups developing frontier technologies.

According to the regulator, the action falls under China’s national security review framework and reflects a broader effort to prevent the transfer of AI talent, intellectual property and strategic capabilities to foreign firms at a time when Washington is simultaneously restricting Chinese access to advanced semiconductor technology.

The acquisition had been linked to Manus, an AI startup whose parent company, Butterfly Effect, shifted operations from China to Singapore following a $75 million funding round led by US venture capital firm Benchmark in 2025. The relocation enabled restructuring aimed at bypassing both US investment constraints on Chinese AI firms and Chinese restrictions on cross-border IP and capital flows.

Manus had previously closed its China operations and laid off staff before relocating, with operations later continuing from Singapore-based entities. Despite the restructuring, Chinese authorities moved to assert jurisdiction over the transaction, with regulators also probing the deal earlier this year.

The development underscores Beijing’s widening interpretation of national security oversight in foreign investment reviews. Legal experts noted that regulators are increasingly examining not only the incorporation location of firms but also factors such as the origin of technology, R&D activity, data flows, and the nationality of founding teams when assessing cross-border transactions in sensitive sectors.

In a related response, Meta Platforms said the transaction complied with applicable law and expressed confidence in a resolution to the inquiry.

Manus, previously promoted in Chinese media as a breakthrough AI agent developer, was known for building agent frameworks layered on top of existing Western large language models rather than developing foundational AI models itself.

The case also highlights growing friction in US–China technology competition, particularly in artificial intelligence, where both countries are tightening controls over strategic assets, talent flows and advanced computing infrastructure.

Analysts said the decision signals that national security clearance is becoming a routine requirement for cross-border technology deals involving Chinese-origin assets, regardless of corporate restructuring or offshore incorporation strategies, including moves to jurisdictions such as Singapore.