China on Monday (April 27) blocked US tech giant Meta’s $2-billion deal to acquire the Chinese-origin AI agent Manus.When it launched in early 2025, Manus was hailed as a major technological accomplishment, especially in the context of the race between the US and China to develop artificial intelligence. Soon after, Manus shifted its base to Singapore, and by December, Meta — the parent company of Instagram, Facebook and WhatsApp — moved to acquire it.What is unusual is that Beijing has cracked down on the deal despite the company’s distance from China. It even summoned the two co-founders earlier this year and prevented them from leaving the country under the regulatory review, the Financial Times reported. Meta is now preparing to unwind the acquisition following the order, The Wall Street Journal reported on Tuesday.Why did the Manus deal come under review?In a one-paragraph statement, the Chinese government said the office of the foreign investment security review working mechanism has decided to prohibit foreign investment in Manus and ordered the parties to revoke the deal.It did not provide any reasons for the review, but Beijing had earlier asked the two companies “to unwind the deal and fully restore Manus’s Chinese assets to their original state, The WSJ reported, quoting sources. “This includes stripping any previously transferred data or technology from Meta.”China sees a national security imperative in Manus, which is a general AI agent. These agents are built by training on vast amounts of data, but unlike chatbots such as ChatGPT or Google Gemini, they are equipped with “tool calling”. This ability allows them to retrieve updated information in real-time from the web, equipping them to handle complex prompts, code, and interact with other apps, such as calendars and emails. Story continues below this adManus was billed as the world’s first general AI agent and received praise from Twitter co-founder Jack Dorsey and AI platform Hugging Face’s Victor Mustar. In a statement on the deal, Meta said it would “integrate it into our products.” Although some have questioned whether the technology in question is genuinely unique or proprietary.Also Read | Manus at the centre of AI raceDespite the company shifting base away from China and winding down its operations there, WSJ reported that “Chinese authorities believe they have the authority to demand the deal be unwound because Beijing Butterfly Effect Technology (Manus’s parent company) remains a Chinese company… Chinese law dictates that any foreign investments that may carry a national-security risk could be subject to review by authorities.”However, a Reuters report noted that in 2025, Butterfly Effect re-incorporated in Singapore, thus bypassing investment restrictions on Chinese AI firms, as well as Chinese rules limiting domestic AI firms’ ability to transfer their intellectual property and capital overseas.Global Times, the Chinese Communist Party’s English mouthpiece, stated in an editorial: “Manus relocated its headquarters to Singapore, drastically downsized its domestic team, retained only core technical staff, and completely ceased services and operations within China.”Story continues below this adNewsletterFollow our daily newsletter so you never miss anything important. On Wednesday, we answer readers' questions.Subscribe“The biggest concern was that Manus, a company built on Chinese engineers and infrastructure, appeared to be ‘cutting ties’ with its Chinese roots after securing US investment. At the time, many in the industry suggested that this could be a case of regulatory evasion through a ‘Singapore washing’ strategy,” it added. Chinese-origin companies, like TikTok and the online fashion retailer Shein, have shifted to Singapore in recent years.It also pushed back against accusations of “long-arm jurisdiction,” arguing that the issue was not about the current status of the company. “Rather, it lies in the extent of its technological, talent, and data links with China, and whether the transaction could harm China’s industrial security and development interests. Manus’s early R&D was conducted in China and… its core data originated there. These factors mean that the movement of its personnel, technology, and data is inevitably tied to China’s interests,” it said.Tech as a geopolitical toolControl of data and technology, especially the kind seen as novel or unique, is becoming crucial in the geopolitical calculations of major countries. India, for instance, was among the earliest countries to restrict TikTok following the Line of Actual Control (LAC) standoff with China in 2020, citing data security and sovereignty. Story continues below this adWith China and the US the frontrunners in tech development, their geopolitical rivalry inevitably sets the tone for how they engage with each other. FT reported in January that the Chinese leadership was concerned about “selling young crops,” or giving away emerging companies in these domains. Before Manus, China had targeted the American semiconductor company Nvidia by investigating its 2019 acquisition of the Israeli-American network and data transmission company Mellanox Technologies. China cited market competition and anti-monopoly laws as the basis for the investigation, but its timing was notable. It came after a longer sequence of events in which the US government, under the Biden administration, restricted Nvidia from selling high-quality chips to the country. Also Read | China to curb US investment in tech companies: ReportNvidia eventually sold an inferior category of chips in China, which were also later banned under the Trump administration. In turn, China reportedly limited its companies from purchasing the chips.Such linking of technology with national advancement and security predates the AI wave. The United States restricted Huawei in 2019, when it designated the Chinese telecommunications company as posing a threat to national security. More recently, it mandated TikTok to divest from Chinese ownership to continue operating in the country.Story continues below this adOn China’s part, arguably, restrictions on US tech can be traced even further back when seen more broadly, preventing social media giants such as Facebook and Twitter from even operating in China. What does this mean for the larger US-China AI race?The move will also have a chilling effect on any potential founders who want to launch tech products and companies in China. As Fortune noted, “China’s move puts the country’s AI founders in a bind. If they stay in China, they deny themselves access to U.S. funding and computer chips. But if they redomicile overseas, they invite scrutiny from Beijing if they tap public markets or seek an acquisition. Founders may end up setting up overseas from the get-go, whether somewhere like Singapore or in the U.S.”That was perhaps the intention, to warn emerging developers, but it will also hurt China’s perception as a major tech player. Despite having the talent and infrastructure to produce quality global products, ranging from smartphones to robots, the opacity of its systems and state control could deter foreign investments. This, even as the government itself has argued for focusing on “New quality productive forces” — innovation-led, emerging industries.Story continues below this adChris McGuire, Senior Fellow for China and Emerging Technologies at the think tank Council on Foreign Relations, wrote on X, “Ultimately, this is a much larger defeat for the Chinese AI ecosystem than for the United States. Meta will be fine without Manus. But Chinese nationals looking to found AI companies will increasingly just start them overseas.” He added, “Given the Chinese government clearly believes that the US and Chinese AI ecosystems should be completely separate, we should stop helping their ecosystem succeed! China’s AI companies remain extremely reliant on US compute, AI models, and chipmaking tools. If we tighten the screws on China’s access to US tech, the Chinese ecosystem will be even less attractive to founders, and more will just start companies overseas.” With China-US relations at a low, such calls from the US could grow in the near future.