A few years after its incubation in 2023, Manus, an autonomous agentic AI start-up, created securities in December 2025, when Meta announced its acquisition for $2 billion. Although Chinese authorities rushed to order an investigation into the deal, it took four months to finally relax the transaction. Since 2020 regulatory crackdown When it comes to tech companies, Beijing is closely monitoring and directing the growth of tech startups. Despite this, China had to cancel the deal retroactively once the transaction was concluded. The late cancellation of the Manus acquisition will create challenges effectively untangling the transfer of data, assets and talent. What’s more, this episode also represents important structural tensions in China’s domestic industrial policy ecosystem.
First, the regulations intervention in Manus’ case, it was unconventional. The move was undertaken by China’s top economic planning body, the National Development Reform Commission (NDRC), and not the anti-monopoly regulator, the State Administration for Market Regulation, which had taken similar measures in the past. Notably, the NDRC’s intervention invoked the 2021 Foreign Investment Security Review Measures for the first time, which could be characterized as a step toward institutional improvisation, rather than a mere regulatory intervention.
According to some reports, the affair was escalation to the Chinese National Security Commission. This not only indicates that China viewed the risk of Manus falling into Meta’s hands as a national security concern, but it also has huge implications for the clarity of existing regulations for AI companies. Chinese regulators appear to have drawn a red line against the popular practice of Chinese-founded companies restructuring and operating from an offshore location (known as “Singapore washing”). Chinese AI companies will view the Manus fallout as a cautionary tale. But the unprecedented nature of this intervention means that Chinese AI startups cannot model regulatory risks accurately.
The consequences are already visible in the recent measures taken by major Chinese startups. MiroMind is expected to suspend its services in Greater China due to ongoing trade adjustments. The CEO said strict internal firewalls were needed between the company’s domestic and international operations. Moonshot AI is considering dismantle its special corporate structure, since Beijing has asked it to pursue a listing in Hong Kong through a mainland Chinese entity, instead of the Cayman Islands.
Such visible panic among Chinese AI startups led the NDRC to issue a call that foreign investment should not be reduced. In fact, a few days after the decision to block this acquisition, Chinese officials reaffirmed their open door policies to foreign investment. At the same time, reports suggest that domestic funding for Chinese AI startups tripled in the first quarter of 2026.
China observers often remain perplexed by the gap between its official stance on innovation and its regulatory policies. Research demonstrates that the Chinese state’s policy towards its technology companies can be defined as a policy of carrots and sticks, which depends on a range of factors, including the functional role of the company and its strategic alignment with the broader goals of the Chinese Communist Party.
The case of Manus is perhaps atypical. While most present this episode as an attempt by Beijing to block the release of Manus, it is rather doubtful whether China has a legitimate exit strategy in place. Most of China’s AI ecosystem relies on a heavily state-subsidized architecture, including government-led funds, political bank loans, local government equity participation, and more. In such cases, the state retains a strategic pretension and the question of foreign acquisition of these companies becomes de facto unviable. Zhipu AI, another young AI startup and a leading developer of AI models, illustrates this story. While Zhipu AI was able to immerse itself in the world heavily state-funded ecosystemManus’ initial efforts to exploit the national ecosystem failed.
Two factors offer perspective for understanding this distinction. Unlike Zhipu AI, which is a frontier AI model developer, Manus’ core product operates at the application layer. The data dimension makes this worse. Manus agentic frameworks derive their value precisely from operating in international digital environments. China’s data governance regime, designed for a closed information ecosystem, is structurally incompatible with building globally competitive agentic AI. Chinese regulators have previously penalized companies that process large amounts of sensitive public data.
So, despite widespread media attention and hype from AI enthusiasts around the world, Manus lacked the strategic importance to fit into the core industrial policy ecosystem, which relies on large amounts of state-incentivized funding. Its sale was blocked because it revealed a contradiction that Beijing had never been forced to publicly resolve before. A late response to this could trigger state facilitation of external funding for Manus founders to buy their way back.
The Manus case does not stop at Manus and other existing AI startups. The recent episode threatens the calculation of returns on which China’s AI talent strategy was founded. This signals to Chinese AI researchers and engineers, especially those with international exposure, that the domestic AI ecosystem does not always guarantee an exit route and that business decisions are subject to political veto. Much depends on how Beijing’s lucrative political architecture will resolve this void.
From a broader perspective, the Manus case improves analytical understanding of the AI race between China and the United States. Manus does not form models; rather, it develops frameworks that transform AI models into functional agents. Beijing’s blocking of the Manus deal indicates that competition is no longer just about chips or models, but has expanded to product design and engineering. Therefore, AI agents can now be considered strategically sensitive commodities. If Beijing’s stated goal is to prevent the loss of critical technology and data into the hands of a rival, then its first obligation is to address policy inconsistencies within its own domestic ecosystem.