China Unwinds Meta’s Acquisition of Manus: Implications for Cross-Border AI Transactions
May 5, 2026
On April 27, 2026, China’s National Development and Reform Commission (NDRC) ordered the unwinding of Meta’s US$2 billion acquisition of AI startup Manus on national security grounds.1 The transaction closed in December 2025, and Meta has already integrated Manus’s operations. Now the parties are being ordered to unscramble the eggs.
The timing of NDRC’s decision, at a moment of intensifying strategic competition between the United States and China over the future of AI, is hardly accidental. Both governments now treat AI supremacy as a core national security objective. Washington has tightened outbound investment rules and expanded semiconductor export controls aimed at limiting China’s AI capabilities, while Beijing has doubled down on the indigenous innovation of AI technologies in its latest Five-Year Plan.
The Meta-Manus blocking order should be viewed against this backdrop: it is not merely a one-off enforcement action but part of a broader pattern in which China (and the United States) are deploying regulatory tools to secure strategic advantages in the AI race.
Key Takeaways
- This is the first time that a consummated deal has been ordered to unwind under China’s Foreign Investment Security Review Measures (FISR Measures).
- The prohibition order signals a new and aggressive willingness to intervene in deals involving strategic technologies, thus underscoring Beijing’s determination to retain control over indigenously developed AI capabilities.
- Relocating a company to a third jurisdiction (in this case Singapore) may not result in China-sourced technologies, talent, or businesses being immune from China’s regulatory reach.
- Chinese authorities can draw on an extensive and expanding regulatory toolkit—including national security rules, technology export controls, cross-border data transfer rules, and merger control under the Anti-Monopoly Law (AML)—to probe strategic transactions with a nexus to China.
The Limits of Redomiciling
Founded in Wuhan and Beijing, Manus is a developer of AI agents. In March 2025, the company gained widespread attention by unveiling what it described as the world’s first general AI agent, capable of independently completing complex tasks ranging from market research and software coding to data analysis and content creation. Chinese state media and commentators celebrated Manus as the country’s next DeepSeek.
In the summer of 2025, Manus relocated its headquarters and core employees to Singapore, dismantling its operations in China. Redomiciling from China is a strategy adopted by some Chinese companies, in particular tech companies, to navigate conflicting restrictions of Chinese or US regulators.
However, with its unprecedented intervention in the Manus deal, China has sent a clear signal that relocating a Chinese company’s corporate seat to a foreign jurisdiction will not exempt it from Chinese regulatory scrutiny if the company’s core technologies, founders, or research infrastructure originate from or maintain connections with mainland China. Notably, the NDRC order referred to the acquisition of the Manus “project” by Meta (rather than a particular legal entity), as if to underscore that China was looking beyond corporate formalities to reach the indigenous Chinese business behind.
The Long Reach of China’s National Security Foreign Investment Measures
The NDRC decision consists of a single sentence ordering the transaction unwound without explanation. However, the mere fact that the decision was issued by the NDRC’s Office for the Foreign Investment Security Review Working Mechanism signals that the authorities relied on the FISR Measures as their primary tool to intervene.
Under the FISR Measures, which were enacted in 2021, a direct or indirect foreign investment that may have an impact on China’s national security can be subject to national security review. The regime covers foreign investments in defense and other “important sectors” including infrastructure, IT and internet products and services, and other key technologies. In recent years, these deliberately broad formulations have been accepted as encompassing AI and digital platforms. Under the FISR Measures, the NDRC has powers to call in transactions (where they were not notified), impose conditions on the transaction, or prohibit the transaction outright. See our prior alert for more details on the FISR Measures.
Public statements of the Chinese government indicate that the authorities had considered a range of other regulatory tools for the purposes of investigating the Manus transaction.2 These tools included technology export controls and cross-border data transfer rules. These tools do not, however, enable the Chinese government to address issues concerning the ownership or a transfer of ownership of a business, nor do they give the regulators the ability to unwind a transaction.
Certain public reports also suggested that China explored the possibility of using its merger control regime under the AML.3 Under the AML rules, the State Administration for Market Regulation (SAMR) has a power to call in non-notifiable transactions where there is evidence of competitive harm. A SAMR review is lengthy, however, and would require supporting evidence of competition concerns and a reasoned basis for its decision that SAMR would be required to publish.
In contrast, the FISR Measures afford the regulator considerable discretion and allowed for a swift surgical intervention in the market under cover of national security considerations.
Lessons from the Manus Case
The Manus case carries important lessons for parties contemplating cross-border AI transactions with a China nexus, particularly as US-China competition over AI supremacy reshapes the regulatory landscape on both sides of the Pacific.
First, redomiciling a company does not remove China’s jurisdiction over what it considers to be Chinese technologies, personnel, or businesses. As the Manus case demonstrates, the FISR Measures afford the Chinese authorities a power to call in and review—and ultimately unwind—any non-notified transaction, even if the target company has formally sought to sever its connections with China. Parties should assume that any AI venture with Chinese origins, regardless of its current domicile, may remain within Beijing’s regulatory purview.
Second, a comprehensive regulatory risk assessment covering all relevant Chinese regimes is essential at the earliest stage of transaction planning to avoid unwelcome surprises. As discussed in this alert, China’s national security rules, technology export controls, data transfer restrictions, and merger control under the AML can all be utilized to probe a transaction.
Third, the NDRC’s prohibition is likely to have a chilling effect on cross-border AI transactions involving China-origin business in sensitive sectors, regardless of where those companies are currently domiciled. In a climate of heightened US-China AI competition—where Washington restricts outbound investment and Beijing guards against the outflow of strategic capabilities—acquirers, investors, and targets alike should anticipate longer regulatory timelines, more intensive review, and the distinct possibility of post-close intervention where significant strategic assets are concerned.
Fourth, going forward, parties may need to reconsider whether to proactively approach the NDRC under the FISR Measures to guard against a post-close intervention. This may be advisable particularly where there is a foreign acquisition of important strategic indigenous technologies.
The O’Melveny team has deep expertise in antitrust, emerging technologies, and national security matters and significant experience navigating complex merger review, foreign investment, and regulatory issues arising in cross-border transactions involving sensitive technologies.
1 See the NDRC announcement: https://zfxxgk.ndrc.gov.cn/web/iteminfo.jsp?id=20623.
2 See: http://english.scio.gov.cn/pressroom/2026-01/09/content_118270474.html.
3 See: https://www.ft.com/content/9496e2bc-f67a-4db7-b5af-f760fedeb666 and https://www.sinchew.com.my/news/20260427/international/7457930?variant=zh-hant.
This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Philip Monaghan, an O’Melveny partner licensed to practice law in England and Wales, Hong Kong, and Ireland; Courtney Dyer, an O’Melveny partner licensed to practice law in New York and the District of Columbia; David Makarechian, an O’Melveny partner licensed to practice law in California; David J. Ribner, an O’Melveny partner licensed to practice law in New York and the District of Columbia; Vivian Wang, an O’Melveny counsel licensed to practice law in New York and the District of Columbia; and Lining Shan, an O’Melveny counsel licensed to practice law in China, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.
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