BEIJING – China has sought for years to exert influence over business deals beyond its home turf. Still, its decision to press Meta Platforms to unwind a US$2 billion (S$2.6 billion) acquisition of AI start-up Manus marks a step unlike anything it’s tried before.
The country’s powerful state planner decreed on April 27 that the deal must be cancelled – four months after it was sealed. In doing so, it’s targeting a US tech juggernaut with little to no business operations in China and a start-up that, while originally from China, had legally moved to Singapore.
The two companies have spent months operating on the assumption that the deal was wrapped up. Manus’ employees have already moved into Meta offices in Singapore, while its executives have joined the US firm’s high-profile AI team. Investors in Manus, including Tencent Holdings, ZhenFund and HongShan, have already received their payouts, according to people familiar with the matter.
One big question will be whether Beijing has the power to force the Manus deal’s reversal – and, if so, how. Meta quickly responded on April 27 to the terse announcement from the National Development and Reform Commission (NRDC) by saying it had complied with applicable laws and hoped for an “appropriate resolution,” without elaborating.
“The Manus incident shows the challenges of regulating Chinese-origin capital, talent and intellectual property once they go offshore,” said Stefanie Kam, assistant professor at the China Programme, Institute of Defense and Strategic Studies, Nanyang Technological University, Singapore. “The policy significance lies in the uncertainty the case exposes: What actually moves offshore when an AI company moves offshore?”
China’s regulators have long wielded power far beyond their counterparts in most other countries. They cracked down on Alibaba Group Holding co-founder Jack Ma and forced the company’s finance arm, Ant Group, to pull its initial public offering (IPO) just days ahead of a planned listing in 2020.
In one case with parallels to the Manus situation, Beijing forced Didi Global to unwind its 2021 IPO on the New York Stock Exchange because of regulatory concerns. The leading ride-hailing provider had to delist in the US and hasn’t been able to float its shares on another exchange since. Its market valuation is about US$17 billion.
That Beijing is pressing Meta to reverse course on the Manus deal speaks to the depth of its concerns over the deal – and more broadly its control over development of AI by start-ups across the country. Domestic critics have argued the sale robbed China of valuable AI technology and handed it over to the country’s biggest geopolitical rival.
Still, it’s not clear whether the deal can be reversed in any meaningful way. The start-up has already shared its code with Meta, and it’s been incorporated into the US company’s services, one of the people said. Forcing Manus’ founders and investors to return money to Meta risks accomplishing little beyond giving the American company access to critical technology for free.
“The Manus decision is largely symbolic – unwinding the deal is impractical at this point since capital and technology transfers were complete,” said Laila Khawaja, research director of Gavekal Technologies.
The Chinese government has little leverage over Meta. Its primary services, including Facebook and Instagram, are banned in the country already.
“Beijing’s remaining leverage lies in controlling the cross-border movement of Manus executives and potentially forcing their resignations from Meta,” Khawaja said.
Beijing had already begun to tighten scrutiny of other tech firms in the wake of the Manus deal. In recent weeks, the NDRC and other agencies have told key AI start-ups, including Moonshot AI and Stepfun, they should reject capital from US investors unless explicitly approved, Bloomberg News reported last week. Regulators have also decided on similar restrictions for ByteDance, which owns TikTok and is the most valuable start-up in the country.
The Manus decision is the first time authorities have publicly announced a verdict using a 15-year-old foreign investment review mechanism, according to Liu Xu, a research fellow at the National Strategy Institute of Tsinghua University. It’s impossible to determine the impact on other M&A transactions involving foreign entities, but it’s clear now that deals related to advanced technologies are subject to close scrutiny, Mr Liu said.
If a foreign acquisition targets Chinese companies in high-tech sectors such as AI, or firms with high valuations, those cases could come under strict security review, he said. “Also under a spotlight are deals that could result in loss of control over key patents, or technologies falling into foreign hands,” he said.
The Manus decision comes just weeks before US President Donald Trump and China’s Xi Jinping are scheduled to meet at a high-profile summit, where the two leaders are expected to discuss investments, access to technology, artificial intelligence and trade. It’s not clear whether Meta’s acquisition is critical enough to the US administration to become part of the talks.
Meta cut the deal for Manus as part of its effort to catch up with rivals such as Alphabet’s Google, OpenAI and Anthropic. 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.
The real impact of the NDRC decision may not be on Manus, but on other tech entrepreneurs in China. Many Chinese tech firms have either shifted their bases to Singapore or considered such a move as they seek to expand internationally, raise capital, recruit global staff and loosen the oversight of Communist Party regulators.
“This move serves as a stark warning to other Chinese start-ups and talents considering the “de-Chinaing” template to access overseas capital and markets,” said Khawaja of Gavekal Technologies. “Beijing supports global expansion but wants to closely monitor such moves to prevent talent loss and technology leakage – a new challenge as China ascends in various technology sectors.” BLOOMBERG
