China Just Ordered Meta to Undo a $2.5 Billion AI Deal — and It Won’t Be Easy

China Just Ordered Meta to Undo a $2.5 Billion AI Deal — and It Won’t Be Easy

Meta is now facing one of the most complicated unwinding operations in recent tech history. China’s top economic planning body has ordered the company to reverse its acquisition of Manus, a Singapore-based AI startup with deep roots in China, on national security grounds — and the timing could hardly be more awkward, given that the two companies had already spent months integrating their operations.

China’s National Development and Reform Commission issued a terse, one-line statement on Monday prohibiting foreign investment in the Manus project and directing all parties to withdraw from the deal. No detailed explanation was offered. The statement was brief to the point of being almost clinical — but the implications are anything but.

Meta had acquired Manus in December 2025 for roughly $2.5 billion, with plans to fold the startup’s AI agent technology directly into Meta AI for both consumer and enterprise use. Manus was not an obscure pick. The startup had launched in March 2025 and quickly became one of the most talked-about products in the AI space — a general-purpose AI agent capable of autonomously handling complex, multi-step tasks with minimal human guidance. Within eight months of its launch, it had hit $100 million in annual recurring revenue, making it one of the fastest startups ever to reach that milestone. Analysts compared its debut impact to that of DeepSeek.

The company’s origins, however, were complicated. Its founders — Xiao Hong, Ji Yichao, and Tao Zhang — had established the parent company, Butterfly Effect, in Beijing in 2022 before relocating the operation to Singapore around mid-2025. That relocation involved shutting down Chinese offices, laying off dozens of employees, and reincorporating in Singapore following a $75 million funding round led by U.S. venture firm Benchmark. The restructuring was widely seen as an attempt to navigate regulatory scrutiny on both sides — sidestepping U.S. concerns about Chinese-linked AI firms while also seeking to stay clear of Beijing’s oversight over outbound technology transfers. That strategy, sometimes called “Singapore washing,” has now been publicly and decisively called out.

Chinese authorities flagged the deal almost immediately after it was announced. In January 2026, the commerce ministry said it would review whether the acquisition complied with regulations around technology exports, data transfers, and cross-border investment. Things grew significantly more serious in March, when both Xiao Hong and Ji Yichao were summoned to Beijing for questioning by the NDRC and subsequently barred from leaving China — the first known instance of Beijing using exit bans on executives to directly impede a multibillion-dollar deal with a U.S. technology company.

Monday’s ruling brought the regulatory saga to a formal close. Beijing’s position, stated plainly, is that it retains jurisdiction over Manus because its core technology was developed on Chinese soil — regardless of where the company is legally incorporated. That logic carries significant implications for the broader industry. It effectively asserts that AI intellectual property and talent originating in China are national assets subject to export control, not commercial goods available for acquisition by foreign companies.

Unwinding the deal, however, is going to be far messier than blocking it. By the time the ruling landed, Manus was already partially inside Meta. Around 100 employees had moved into Meta’s Singapore offices, the Manus website had been updated to reflect the completed acquisition, and CEO Xiao Hong had taken on a direct reporting line to Meta’s chief operating officer. The technology had been integrated into Meta’s internal systems. Separating all of that is not a matter of flipping a switch. Possible paths include spinning Manus off to a new buyer, selling it back to its original investors, or finding entirely new backers — each carrying its own complexity and uncertainty.

Meta’s public response was measured. A spokesperson said the transaction had fully complied with applicable law and that the company anticipated an appropriate resolution, without offering any detail on what that might look like. Manus did not issue a public statement.

The geopolitical timing adds another layer. The ruling arrived less than a month before a planned summit between U.S. President Donald Trump and Chinese leader Xi Jinping in Beijing — a meeting expected to address a range of technology and trade disputes. Whether the Manus situation features in those discussions remains to be seen, but the decision’s timing is unlikely to be coincidental.

For the broader AI industry, the message is stark. Beijing is now doing something structurally similar to what Washington has been doing for years — restricting the outflow of strategic technology — but applying it to outputs rather than inputs. Where the U.S. limits the chips that build AI, China is now asserting control over the talent and intellectual property that result from it. The Manus ruling didn’t just block one deal. It redrew the boundaries of what cross-border AI investment is possible, and put every founder, investor, and acquirer on notice that relocation alone is no longer enough to sidestep that reality. Valve’s Steam Controller Is Back — and This Time, It Means Business | Maya