The US-China trade war is back, and in full steam. There have been two parallel moves in the recent weeks, marking a significant escalation of the US-China AI war. In the latest move, China’s industry regulator has asked Facebook-parent Meta to withdraw a $2 billion acquisition transaction of Singapore-based AI company with Chinese roots Manus. What makes this more interesting is that the offer to cancel the deal comes almost four months after it was announced, which is in December 2025. In a statement, the China’s National Development and Reform Commission said that the decision to prohibit foreign investment in Manus AI was made in accordance with the country’s laws and regulations. It further added that the parties involved have been told to withdraw the acquisition transaction.Earlier last week, the US government announced that it would crack down on foreign technology companies, singling out China, that are “exploiting” US artificial intelligence (AI) models, a practice known as model distillation. Now reports suggest that China plans to restrict its leading technology companies, including top AI startups, from accepting US capital without first obtaining government approval. The Chinese regulators’ plan is reported to be part of China’s broader response to Meta Platforms’ controversial acquisition of Chinese-origin AI startup Manus. According to a report in Bloomberg, Chinese agencies including the National Development and Reform Commission have told several private companies in recent weeks that they should reject capital of US origin in funding rounds unless explicitly approved. The report quotes people familiar with the matter. Moonshot AI, which is considering an initial public offering (IPO), is reportedly among those that got the guidance from China’s powerful state planner. Fellow Chinese startup StepFun is also said to have received similar instructions. The report claims that Chinese regulators have also decided on similar restrictions for the country’s biggest technology companies including ByteDance, the owner of TikTok and the most valuable startup in the country. As for the reason, the report said that the intent of the latest restrictions is to prevent US investors from taking stakes in sensitive sectors where national security is a priority. The twin moves suggest that regulators are worried about a leakage of homegrown technology abroad as Chinese-founded startups and companies explore international opportunities. In the wake of the Manus acquisition, many academics decried the loss of a valuable asset to the US. Many worried that the deal would encourage other startups to follow suit.
Meta’s $2 billion acquisition of Manus AI that China has canceled
Manus was dubbed as China’s next DeepSeek and the company claimed that its AI agent could buy property, program video games, analyze stocks, and plan travel itineraries. In December 2025, Meta announced that it would acquire Manus to boost its AI development. Meta acquired it for $2 billion. Manus was founded in China but in 2025 the company relocated its headquarters and core team to Singapore. Manus was then operated by Singapore-based Butterfly Effect Pte. Welcoming Manus buy, Meta’s chief AI officer Alexandr Wang wrote on
China bans Manus AI founders from leaving country
Shortly after the acquisition was announced in December, China’s commerce ministry said it would investigate whether the deal complied with local laws and regulations. In March, China blocked founders of the startup from leaving the country, this was months after Manus was acquired by Meta. According to a report in Financial Times, scrutiny of the Manus transaction highlights growing concern about what Chinese leaders have described as “selling young crops” to foreign buyers in strategic areas such as AI. There are also reportedly concerns that by moving out of China, Manus bypassed domestic regulation in ways that would encourage other groups to follow. Manus’s alleged FDI violations are also said to be related to Chinese reporting rules after its ownership changed.
