Beijing has moved to clarify its rejection of Meta's proposed $2 billion acquisition of Manus, a Chinese artificial intelligence startup, signaling that it will continue to support domestic companies' overseas expansion—provided they do not attempt to bypass regulations through what officials call 'Singapore washing.'
The National Development and Reform Commission's Office of the Working Mechanism for Security Review of Foreign Investment formally prohibited the foreign takeover on Monday, ordering the parties to unwind the transaction. State media outlets have since published a series of commentaries explaining the policy rationale, aiming to reassure foreign investors that China is not broadly tightening controls on inbound investment.
Three Red Lines for AI Transfers
Chinese commentators have identified three key red lines that Manus crossed: technology sovereignty, data sovereignty, and national security. A Guangdong-based business columnist writing under the pen name 'Shengchandui' described the restructuring as a form of 'technology smuggling.'
'Where the technology originates determines jurisdiction. Manus's core algorithms and team were built in China. Shifting the company offshore and selling it to a US buyer amounts to exporting domestically developed capabilities,' the columnist wrote.
Manus, developed by Beijing-based startup Butterfly Effect, first gained global attention in March 2025 with a high-profile debut demonstrating its ability to perform complex tasks such as screening resumes, finding properties within a budget, and analyzing stock correlations among Nvidia, Marvell Technology, and Taiwan Semiconductor Manufacturing Co. The company's slogan was 'Leave it to Manus.'
According to an article published by Yuyuan Tantian, a social media account affiliated with China Central Television, the Measures for the Security Review of Foreign Investment clearly define the scope of scrutiny. Investments involving national defense security must be declared regardless of foreign ownership levels, while in key sectors such as important information technology and critical technologies, any foreign investor gaining actual control falls within the review scope. Manus's general-purpose AI agent falls squarely into these categories, and the company did not proactively declare the transaction.
The Singapore Washing Strategy
Chinese tech firms have historically pursued dual listings in Hong Kong and on NASDAQ to fund expansion. Since October 2024, however, US restrictions have barred American funds from investing in China's AI sector, giving rise to the workaround called 'Singapore washing'—spinning off or relocating to Singapore to raise capital.
Manus executed this strategy over the past year. In June and July 2025, it moved its headquarters to Singapore, switched its operating entity to Butterfly Effect Pte, cut its mainland team from more than 120 staff to about 40 core members who were relocated, cleared its China-based social media accounts, and blocked Chinese IP addresses from accessing its website. By late 2025, it appeared to operate as a Singapore-based company. On December 30, Meta announced the acquisition, with co-founder Xiao Hong expected to take a senior role in the US company. In January 2026, regulators intervened, launching a review that ultimately blocked the deal.
Chinese media reported that co-founders Xiao Hong and Ji Yichao were barred from leaving China in late March 2026 after a meeting with the NDRC in Beijing, as the Ministry of Commerce initiated a national security review.
The Yuyuan Tantian article, citing legal and technology experts, said regulators assess three layers of risk: technology, talent, and data. 'Manus's core assets, including algorithms, data and talent, were developed within China by domestic teams, and any transfer of control overseas would require a national security review,' it stated.
The article also warned of external threats: 'At present, some countries are expanding the scope of security reviews and blurring the definition of threats, specifically targeting the AI development of other countries. This value orientation is influencing their narrative of security.' Without naming the United States, it added, 'In order to safeguard their own security, they may even use other countries' capabilities to attack them. We have to be vigilant.'
China's decision comes amid broader tensions over technology transfer and data sovereignty. For context, similar dynamics are playing out in other sectors, as seen in Beijing's new supply chain law targeting foreign firms' decoupling efforts. Meanwhile, Singapore's AI neutrality model is cracking under US-China pressure, highlighting the challenges for regional hubs caught between the two powers.
Beijing insists it remains open to foreign investment and will continue to encourage AI innovation. But the Manus case makes clear that any attempt to transfer domestically developed technology to a foreign buyer—especially through offshore restructuring—will face strict scrutiny.
