China’s National Development and Reform Commission (NDRC) announced on Monday that it would block Meta’s acquisition of Manus AI. Since the deal has already been completed, this amounts to retroactively unwinding the transaction. It is not clear whether Meta will try to push back on the decision, but the NDRC statement does not imply flexibility from the Chinese government. We would thus assume that the transaction will be unwound.
The immediate implication of this action is to chill moves by Chinese tech companies – even those located outside of China – to court funding from US-affiliated investors without explicit regulatory approval. Beijing’s terse statement announcing the block came from NDRC’s office of foreign investment security reviews, China’s equivalent of the CFIUS process chaired by the US Department of Treasury. The NDRC office has existed since 2020 but relatively inactive. Now, it has introduced the kind of regulatory risk that foreign investors confront with the CFIUS process – the possibility of a transaction being unwound retroactively.
We doubt that China’s regulators will be willing to provide informal guidance that makes Chinese tech firms comfortable accepting investment from US-affiliated firms or venture capital funds. Instead, firms will look to state-backed domestic venture capital, strategic investment by other companies, or IPOs in China and Hong Kong. There are also risks that Chinese AI researchers and top talent will be more reluctant to move to the US, but Beijing has not yet actively discouraged this.
The blocking of the Manus deal reflects the degree to which both Washington and Beijing regard AI competition as strategic competition, even at the level of agentic applications rather than foundational models. But investors should note a broader trend over the last several months, which is that Beijing has been notably aggressive about formalizing and institutionalizing its economic security toolkit. Actions in the last month include the following, in chronological order:
- March 31: Issuance of “State Council Provisions on Industrial and Supply Chain Security”. The new measures have sparked concern with multinational companies active within China, as they threaten foreign firms and executives with potential sanctions for actions that “damage the security” of Chinese supply chains (such as implementing US export controls).
- April 7: Issuance of “State Council Regulations on Countering Improper Extraterritorial Jurisdiction by Foreign States.” This is a further formalization of China’s bureaucratic and legal procedures to pushback on sanctions, export control, and other measures by other governments.
- April 24: China imposes export controls on EU firms for the first time for their participation in arms sales to Taiwan.
- April 27: China’s foreign investment security review office blocks the Meta-Manus deal.
While this trend towards formal tools for economic coercion has been developing for years, the recent pace suggests that China’s leadership feels highly confident that China’s supply chain dominance and economic and geopolitical influence limit the degree of resistance from foreign capitals and multinationals.
We do not expect the Manus deal to affect Trump’s upcoming visit to China (May 14-15). But Beijing’s sense of confidence, and determination to advance technological and industrial self-reliance – echoed by Washington – are another reason to expect the trip to result in relatively narrow and transactional economic deliverables.
