Meta's purchase of Manus rejected: The conclusion and warning of a $2 billion deal

Author: Gu Lingyu

On April 27, the Office of the Security Review Mechanism for Foreign Investment (National Development and Reform Commission) issued a brief announcement: according to laws and regulations, a decision has been made to prohibit investment in the Manus project involving foreign investment, requiring the party concerned to revoke the acquisition transaction.

The announcement contains only one sentence.

This deal—valued at $2–3 billion and dubbed the third-largest merger and acquisition in Meta’s history—was brought to an end in this way less than four months after the official announcement. It is also the first time China has formally stopped a large cross-border AI merger and acquisition through the foreign investment security review mechanism.

Behind this outcome is the full process of a Chinese AI startup trying to find a way out amid the regulatory squeeze between China and the US, only to fail on both ends. Multiple lawyers and industry insiders said that the Manus incident serves as a warning for projects like these: companies must clarify their identity as early as possible.

One lawyer said that, at present, it is not only the Manus company that has encountered compliance reviews. “Actively cooperating with regulators and building trust between regulatory authorities and the relevant parties is the best solution.”

The Butterfly Effect in Ten Months

On March 6, 2025, Beijing Butterfly Effect Technology Co., Ltd. launched Manus, claiming it was “the world’s first general-purpose AI intelligent agent.” The product used an invitation-only closed beta approach, and the invitation code was once being traded for over ten thousand yuan.

In late April, Butterfly Effect secured a $75 million Series B financing round led by Benchmark, an American venture capital firm. The post-money valuation was nearly $500 million. Previously, institutions such as ZhenFund and Sequoia China had already entered in earlier rounds.

Not long after the financing news broke, the turning point arrived. In July 2025, Manus co-founder Zhang Tao disclosed at a keynote speech at a conference in Singapore that the company’s headquarters had been relocated to Singapore. That same month, Manus conducted layoffs in China: among 120 employees, only a little over 40 were retained. Core technical personnel moved to the Singapore headquarters, domestic social media accounts were cleared, and the official website blocked China IP addresses.

A series of such actions was widely viewed as an attempt to strip the “Chinese identity” through a third-country entity and to pave the way for subsequent steps.

On December 30, 2025, Meta announced the acquisition of Butterfly Effect, Manus’s parent company. The negotiations lasted only a little over ten days, and founder Xiao Hong would serve as Meta’s vice president. Manus, with annualized revenue already exceeding $125 million, became the most closely watched sale case in China’s AI startup circle that year. As the participant that fully followed through on all four rounds of Manus financing, ZhenFund was originally expected to be the biggest financial beneficiary of this transaction.

However, this deal faced compliance questions from the very beginning.

On January 8, 2026, at a routine press conference, He Yadong, spokesperson for the Ministry of Commerce, responded to relevant questions by stating that enterprises engaging in activities such as foreign investment, technology export, data outflow, and cross-border M&A must comply with China’s laws and regulations and follow statutory procedures. The Ministry of Commerce will, together with relevant departments, carry out an assessment and investigation into the consistency of this acquisition and export control, technology import and export, foreign investment, and other related laws and regulations.

On April 27, the ban took effect. As of the time of publication, Manus had not issued any response.

Red Lines Touching National Security Concerns

The legal tool ultimately cited by the NDRC was the Measures for the Security Review of Foreign Investment, not the export control rules that the outside world had previously expected. This mechanism is jointly led by the NDRC and the Ministry of Commerce. It is an inter-departmental joint review mechanism: if a transaction touches on national security concerns, it can be brought into the review process. The review outcome may be approval, approval with conditions, or prohibition with a requirement to revoke.

At the time the transaction took place, Manus’s domestic team, local products, and domestic patents were nearly wiped out; only members of the founding team remained Chinese nationals.

Caixin cited an analysis by Jia Shen, a senior adviser at Zhonglun Law Firm, saying this approach is a typical exercise of extraterritorial jurisdiction. Both parties to the transaction are overseas entities, and the relevant measures are more of a deterrent—sending the market a signal that similar transactions may not be approved later.

Previously, multiple lawyers, when interviewed by the media, pointed out that the Manus case touched multiple red lines under Chinese law.

The first is technology export control.

“China has had regulations limiting technology exports in the past, but they were actually not used much. Manus will become a typical case: technologies developed in China—at least technologies that satisfy certain conditions—cannot be transferred abroad casually. This transfer is not limited to acquisitions; if it involves an overseas subsidiary or an affiliated company, where there is technology licensing or transfer, it may also run into compliance issues under Chinese law,” a lawyer who did not wish to be named told us.

The second is data security.

Manus’s product used large quantities of data from within mainland China during its training process. Multiple lawyers pointed out that if these data include personal information of Chinese residents, and Manus transfers the product and technology to an overseas company, it must undergo a strict data outbound security assessment.

The third is compliance in foreign investment M&A.

The structure of this deal was that Meta, a US company, acquired Butterfly Effect, a Singapore company; however, Butterfly Effect’s core technology was developed domestically by a team of Chinese nationals, and its main revenue sources were also in China. The Measures for the Security Review of Foreign Investment explicitly states that foreign investments involving fields such as key technologies, important information technology, and internet products and services must be reported for security review. For transactions that were not reported, regulators may initiate an investigation after the fact.

Xia Bikang, a partner at Yingli Law Firm, told Yicai that when Manus incorporated in Singapore, it very likely had already crossed the red line for technology export control. Meta’s huge acquisition was just a “magnifying glass” that put this hidden risk under a spotlight. The deeper logic behind regulatory actions lies in policy correction—facing highly visible public opinion, regulators also need to clarify their stance and policy orientation, in order to avoid creating an implicit incentive effect for potential wrongdoing.

The previously mentioned unnamed lawyer said that the direction of the Manus case is highly related to the company’s own choices. He believed that the Manus team made a fundamental mistake in its strategic direction. “After they became popular in February 2025 within a small circle, they didn’t dare to say they were actively promoting it, but at least they enjoyed being portrayed as ‘DeepSeek’s second’ and as representatives of Chinese companies. Yet in an instant, by July 2025, simply because they received inquiries and investigations from the US Treasury Department—these were not legally binding legal documents—they chose the most resolute way to evade Reverse CFIUS review: moving the entire company to Singapore.”

His view was that the place of registration was not the core mistake. “Don’t think like someone taking a test. No matter which country’s regulators, they won’t ‘grade according to predetermined points on a test paper.’ Regulation is a case-by-case judgment based on each company’s specific circumstances at different times.”

How to Return $2 Billion

According to Article 12 of the Measures for the Security Review of Foreign Investment, after the state makes a decision prohibiting investment, the core requirement is to restore within a specified time limit the situation to what it was before the investment was implemented, thereby eliminating the impact on national security.

According to AIPress, revoking the transaction involves multiple layers of procedures.

At the equity level, all parties must sign written termination agreements, revoke the acquisition, and terminate all related supporting documents. If Meta has already completed the equity handover, it must transfer all of its Manus equity back to the original shareholders or domestic entities, and complete the industrial and commercial and overseas-entity change registration.

At the funds level, Meta must refund in full the approximately $2 billion that has already been paid. After receiving the funds, the original shareholders must complete foreign exchange return through the original channels and report to the foreign exchange regulatory authorities in accordance with regulatory requirements. The foreign exchange authorities will review the entire path of the funds to prevent capital flight under the pretext of terminating the transaction.

At the data and technology level, Meta must delete all obtained Manus mainland user data, training data, and business data; issue deletion certificates and accept verification. Manus must restore localized data storage, terminate all technology authorizations and code handovers to Meta, and reclaim control over core AI technologies and algorithm model(s).

If the requirements for revocation are not met, regulators may, according to law, impose penalties such as fines, restrictions on domestic business, and prohibiting relevant entities from carrying out foreign investment activities.

Reconstructing the Logic for Going Overseas

The impact of the Manus case has already gone beyond a single company.

Previously, outsiders had anticipated multiple possible paths for this transaction, including partial approval, conditional approval, or treating the deal as completed but fining all proceeds. In the end, regulators chose the most thorough option: prohibition of investment and a requirement to revoke.

It is widely considered that this is itself a signal. Some believe this is an explicit statement of China’s sovereign jurisdiction in the AI field.

An investor close to Manus told us that the acquisition of AI companies by major tech giants at home and abroad is an important type of exit route for investors, but now this path has policy risks, making the future exit unclear. However, he believes that, in terms of industry substance, the Manus incident has limited impact on the valuation logic for AI going-overseas projects. “Valuation logic is dynamic, and it is also related to the water level of the primary market. Manus’s explosive popularity last year, to a certain extent, was a kind of manufactured public-opinion event. Comparatively, investors are more rational than public sentiment. Ultimately, the impact depends on what the company’s core intrinsic value really is.”

He judges that the Manus incident will very likely accelerate the retention of AI talent in China—not because they are forced, but because it reflects a choice based on the domestic entrepreneurial environment. “For top talent, mobility does not really exist. As long as you choose to start a business, that entrepreneurship must belong to a specific time and space. Now, China’s new generation of entrepreneurs—among the smartest people in the population—should have the ability to interpret these matters.”

Within China, during this period AI Agent was not waiting for Manus. As early as July 2025, when the “runaway” incident involving Manus broke out, Zhipu AutoGLM had already aligned its product form to Manus’s core scenarios. After the rise of the lobster-wave trend and the collective race to build intelligent agents, Manus’s uniqueness was further diluted—products from a range of large companies and newcomers, including the Dark Side of the Moon, DeepSeek, Tencent WorkBuddy, and others, have collectively filled the ecosystem positions of domestically developed agents.

For future AI going-overseas enterprises’ architecture choices, the anonymous lawyer’s advice is: companies must clarify their identity as early as possible.

“If you really want a model of ‘R&D in China, sales overseas,’ the company may have to become an overseas-only sales entity, without holding any core technology—while the core technology remains in China. Then there would be no so-called issues of technology export or transfer. As long as the sales are good enough, or if you mainly use open-source models, overseas financing and even future listings may not face any substantive problems. But if you want to package R&D and sales into a higher-valuation story, then you truly need to think through whether you are a Chinese company or a US company, because that will involve China’s technology export control issues.” he said.

He believes the Manus incident may drive further refinement of technology export regulatory rules. “From a legal perspective, we would expect that after the Manus case, there will be more explicit rules and precedents clarifying which technologies can be exported and which cannot. That will provide a stronger reference for similar transactions in the future. Just like after the Didi incident, the China Securities Regulatory Commission’s overseas listing filing process became a substantive review procedure; the Manus case might be similar. In the past, most companies did not file technology export declarations, but after the Manus case, everyone will think it is very important and will have to do it.”

As far as he knows, it is not only the Manus company that is facing similar compliance reviews. He said, “Actively cooperating with regulators and building trust between the relevant parties and regulatory authorities is the best solution.”