China recently blocked Facebook-owner Meta’s acquisition of Manus, a tech startup founded by Chinese entrepreneurs that launched what it claimed to be the world’s first general-purpose AI agent in March 2025.
The acquisition has attracted widespread public attention since its announcement last December. Information released by the related Chinese government authorities on April 27 indicates that the Meta-Manus transaction presents compliance issues in relation to China’s foreign investment security review process.
China’s security review regime
Foreign investment security reviews are globally recognized foreign investment management regimes that play a pivotal role in balancing economic interests and national security.
China’s foreign investment security review regime constitutes a key part of the country’s foreign investment management system established to coordinate development and security in the course of advancing high-level opening up.
This regime is primarily grounded in the Foreign Investment Law of the People’s Republic of China and the National Security Law of the People’s Republic of China, with its core provisions set forth in the Measures for the Security Review of Foreign Investment (Security Review Measures), jointly promulgated by the National Development and Reform Commission and the Ministry of Commerce (NDRC) on December 19, 2020.
To ensure the effectiveness, security review systems across the world’s jurisdictions generally adopt a substance-over-form approach involving penetrative review, as well as proactive regulatory intervention when necessary.
China’s security review system is no exception; the Security Review Measures establish legal liabilities.
For the parties to an investment, the principal scenarios of non-compliance and their consequences include: In cases of “failure to file when required,” the regulatory authority may order the relevant party to file within a specified period, to dispose of equity interests or assets within a specified period, or to take measures to restore the status quo ante the investment. In cases where approval of the review was obtained by providing false materials or concealing material facts, the approval decision may be revoked and an order may be issued to restore the original status. In cases where approval was granted subject to conditions that have not been fulfilled, an order may be issued to rectify the non-compliance or even to restore the original status.
Any of the aforementioned violations will be recorded as adverse credit information in the national credit information system and may result in joint disciplinary actions by multiple government departments.
The Meta-Manus transaction
The currently high-profile transaction involving Meta’s acquisition of Manus, which entails the transfer of domestic AI business assets to an offshore jurisdiction and the ultimate sale to a foreign company Meta, falls within the scope of transactions subject to foreign investment security review in accordance with the provisions of the Security Review Measures.
Meta’s acquisition of Manus originated from the general-purpose agent product Manus. Following its launch last March, Manus received extensive media coverage and attracted significant user attention.
The entity that launched this product is Beijing Red Butterfly Technology Co. Ltd. (Beijing Manus), incorporated in Beijing. Its founder and other investors hold equity interests in the company through a two-tier shareholding structure comprising companies established in the Cayman Islands and China’s Hong Kong Special Administrative Region.
The company also maintains a subsidiary in Wuhan, Hubei Province in central China. Its actual business operations consist of developing AI application software in both Beijing and Wuhan. Both upstream shareholder companies and the downstream Wuhan subsidiary of Beijing Manus are referred to as Manus Group companies.
In its early stages, Beijing Manus was primarily engaged in the development of AI application products. After accumulating a certain user base and technological foundation, the company further launched the general-purpose agent product Manus.
Based on publicly available information, Manus Group companies have arranged for the migration of their entire business from within China to outside China, with a subsequent sale to Meta upon completion of such migration.
Specifically, in June 2025, Manus Group companies first determined to relocate their headquarters to Singapore, at which time their core business remained within China and was held by Beijing Manus. Thereafter, Manus Group companies progressively transferred key assets related to their core business, including core personnel and technology, to a jurisdiction outside China while simultaneously stripping the domestic Manus companies of their core business operations, retaining only the operations pertaining to non-core businesses.
From an overall-effect perspective, although the aforementioned arrangements formally consist of several independent steps, the substantive effect is the ultimate realization of an overall transfer of the core business of Manus Group companies from within China to outside China.
Pursuant to Article 35 of the Foreign Investment Law of the People’s Republic of China, any foreign investment that affects or may affect national security shall be subject to security review.
Where a domestic enterprise first transfers its core business, key technologies, or core team to an offshore entity through an intra-group restructuring, and subsequently a foreign investor makes an investment in such offshore entity, the domestic regulatory authorities, applying the principle of substance over form, will regard the aforementioned transfer from domestic to offshore and the subsequent foreign investment as interconnected and integrated arrangements, and will accordingly review whether the relevant transactions may result in the outflow of key technologies in critical sectors of China.
Penetrative substantive review and proactive regulatory intervention constitute the core mechanisms of the security review system. Therefore, under such circumstances, pursuant to the Security Review Measures, even if the prior outward transfer occurs between affiliates controlled by the founders, the subsequent transaction will still fall within the scope of foreign investment security review.
Compliance recommendations
The compliance risks exposed by the Meta-Manus transaction are not isolated incidents but rather matters of universal concern for technology enterprises in the AI sector during their global expansion.
In cross-border investment transactions, both foreign and Chinese enterprises must pay attention to the potential impact of China’s foreign investment security review on the transaction, including timing, deal certainty and possible restrictive conditions. To mitigate transactional uncertainty and ensure compliance, it is recommended that enterprises:
• Conduct a comprehensive risk assessment prior to making the investment. Establish and improve a risk assessment mechanism to evaluate the compliance and sensitivity of potential investment projects before investment. Identify key areas that may trigger review, and pay attention to and assess the potential impact of the national security regime on the transaction. Meanwhile, it is recommended to continuously monitor developments in security review policies to ensure that the entire investment process complies with legal and regulatory requirements.
• Treat compliance as a “red line” in the design of transaction structures. It is advisable to reduce regulatory uncertainty through transparent and proactively initiated compliance pathways. For instance, adopt phased transaction arrangements, making regulatory approval a condition precedent to closing. While compliance management inevitably increases costs, compliance status can directly determine the success or failure of a transaction and the long-term development of the enterprise.
• Proactively strengthen communication with regulatory authorities. To reduce transaction uncertainty, under certain circumstances, the parties to the transaction may consider engaging in discussions with the office of the foreign investment security review working mechanism under the NDRC. For transactions that may raise national security concerns, the parties to the transaction may consider proposing restrictive conditions to mitigate the impact on national security, thereby facilitating a smoother approval process.
While the Meta-Manus acquisition was banned, this does not signify any change in the Chinese Government’s supportive stance toward international exchange and cooperation by hi-tech enterprises in the AI sector.
China’s policy of advancing high-level opening up is clear and consistent. The Outline of the 15th Five-Year Plan (2026-30) explicitly stipulates expanding market access and areas of opening up with a focus on the service sector, implementing opening up on a broader scale, across wider fields and at a deeper level. It also stipulates strengthening original innovation and tackling key core technologies, and accelerating breakthroughs in the fundamental theories and core technologies of AI.
Looking ahead, Chinese enterprises must prioritize compliance and precisely ascertain regulatory boundaries in the course of globalization. –The Daily Mail-Beijing Review News exchange item
