In a bold assertion of regulatory control over artificial intelligence, the Chinese government has mandated Meta to reverse its acquisition of Manus, a Singapore-based AI startup founded by Chinese engineers.

The decision, announced Monday by the powerful National Development and Reform Commission (NDRC), prohibits foreign investment in Manus and orders the involved parties to dismantle the deal -- potentially chilling cross-border tech partnerships amid escalating US-China AI rivalry.

Probe into 'illegal' deal triggers order

The NDRC, China's top economic planning ministry and key architect of its AI policy, confirmed it had investigated Meta's December acquisition since January. Officials scrutinized whether the transaction breached China's stringent foreign investment rules and requirements for approving technology exports.

"The acquisition violates national regulations," the commission stated, instructing an immediate unwind without specifying mechanics.

Complicating matters, Meta has described the teams as "deeply integrated." Manus engineers have collaborated with Meta staff at the company's Singapore office, per two sources familiar with operations who spoke off-record. It's unclear how to disentangle personnel, IP, or operations, raising questions about enforcement.

Timing raises diplomatic eyebrows

The order arrives weeks before a high-stakes summit between US President Donald Trump and Chinese President Xi Jinping, amplifying geopolitical tensions. Last month, The New York Times reported Chinese regulators summoned Meta and Manus executives, even restricting Manus leaders from leaving China to pressure compliance and deter other AI firms from offshore relocations.

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Manus, incorporated in Singapore as a foreign-owned entity with a Chinese parent, maintains offices in Beijing and Wuhan. Its offshore structure aimed to navigate restrictions from both Beijing and Washington, but the crackdown signals Beijing's intolerance for such maneuvers.

As US and Chinese firms vie for AI supremacy, the ruling could deter Chinese entrepreneurs from foreign funding or partnerships. "This sends a clear message: Registering abroad won't shield you from national security oversight," an industry analyst noted. It may stifle talent flows and investments, favoring state-aligned domestic players.

Meta, which insists the deal complied with all laws, is yet to respond to Beijing's order.