Meta’s Acquisition of Manus Blocked: Cross-Border M&A Alert Under China’s AI Security Red Line | XEON Original
XEON Legal Team
PART 01、Background
On December 30, 2025, news shook the global tech community: U.S. internet giant Meta announced its acquisition of Chinese AI startup Manus for approximately $2-3 billion, marking Meta’s third-largest M&A deal in history. This transaction came to an abrupt halt on April 27, 2026, after a year of twists and turns. The Office of the Working Mechanism for Foreign Investment Security Review, led by China’s National Development and Reform Commission (NDRC), officially announced: the acquisition of the Manus project by foreign investors is prohibited, and the parties are required to unwind the transaction. This is the first publicly blocked foreign acquisition in the AI sector since the formal implementation of the Security Review Measures for Foreign Investment in 2021.
For the Manus case, the focus of Chinese regulators was this: an AI company that grew on the back of Chinese engineers and infrastructure, after receiving U.S. investment, attempted to transfer Chinese AI technology overseas through asset migrations between related parties. China sent a clear signal in this case: in the areas of critical technology and national security, compliance is a fundamental prerequisite for foreign investment access, and any indirect transaction that tries to bypass regulation will face an uphill battle for approval.
PART 02、Legal Basis Under Chinese Law for Prohibiting the Acquisition
China’s decision to block Meta’s acquisition of Manus was not based solely on administrative discretion, but was supported by a well-established legal framework for national security review. The core legal bases can be summarized in three layers:
1. Security Review Measures for Foreign Investment
The Security Review Measures for Foreign Investment, which took effect on January 18, 2021, served as the direct legal basis for this review. The Measures were formulated under the Foreign Investment Law of the People’s Republic of China and the National Security Law of the People’s Republic of China, jointly issued by the NDRC and the Ministry of Commerce, comprising 23 articles that systematically regulate the types, scope, procedures, decisions, and enforcement of foreign investment security reviews.
Taking the Manus case as an example, the Security Review Measures establish two levels of applicability: First, any foreign investment that “affects or may affect national security” is subject to security review. Second, if a foreign investment “involves key information technology and internet products and services, key technologies, or other important fields related to national security,” and the foreign investor will obtain actual control of the invested enterprise, it must be voluntarily notified for review.
The key point of contention in the Manus case was that, upon completion of the acquisition, the AI technology developed and deployed would gain a full channel for overseas expansion through Meta, involving the transfer of AI business assets from China to foreign entities. Under the Security Review Measures, even if the initial asset transfer occurred between related parties controlled by the founders, as long as the ultimate transaction involves foreign acquisition of Chinese technology assets, it falls within the scope of review.
2. National Security Law and Foreign Investment Law
As foundational laws in China’s national security legal system, the National Security Law provides the fundamental legal basis for the state to establish a national security review system for foreign investment. The Foreign Investment Law specifically establishes the foreign investment security review system, clearly providing that the state shall conduct security review of foreign investment that affects or may affect national security. This legislative design makes national security review an integral part of the foreign investment legal framework, reflecting the Chinese government’s policy direction of continuously expanding opening-up while providing legal safeguards for national security risk prevention. Together, these two laws establish the normative foundation and institutional framework for foreign investment security review at the statutory level, ensuring that review activities have legal basis and follow proper procedures.
3. Cybersecurity Law and Data Security Law
With the rapid iteration of AI technology, data security issues have become increasingly prominent. The Data Security Law and the Cybersecurity Law, together with the Security Review Measures, form a multi‑layered security review system for foreign investment. The Data Security Law establishes a data security review system and requires security assessments for the cross‑border transfer of “important data.” In 2025, China continued to strengthen its regulatory framework in the data security field, further refining compliance requirements, certification regimes, and other enforcement mechanisms for cross‑border data transfers, while also expanding the extraterritorial reach of the law. In the Manus case, AI Agent technology involves substantial user data processing and cross‑border transmission, making data security review risks equally significant.
It is worth noting that China’s national security review system follows a logic similar to that of the U.S. CFIUS mechanism – both aim to prevent critical technologies and sensitive data from flowing to foreign entities that may harm their own national security interests. In this regard, the Manus case mirrors the frequent U.S. interventions in recent years against Chinese companies’ acquisitions or investments in U.S. AI firms, demonstrating a reciprocal pattern in which both China and the United States are erecting regulatory barriers in the realm of technology security.
PART 03、Recommendations
For foreign enterprises engaged in or planning to undertake investment and M&A in China, the Manus case offers the following compliance lessons worthy of attention:
1. Voluntarily notify – do not rely on wishful thinking
Under the Security Review Measures for Foreign Investment, any foreign investment involving national defense security, or key information technology and internet products and services, key technologies, or other important fields related to national security, must be voluntarily notified to the Office of the Working Mechanism. Artificial intelligence has been explicitly included within the scope of key technology review. Transactions in these areas must assess national security review risks as early as the negotiation stage, and seek clear guidance from regulators before the transaction is completed.
2. Decoupling entity structures do not constitute a safe harbor
Some analyses indicate that even if the initial asset transfer takes place between related parties controlled by the founders, the subsequent transaction will still fall under the scope of foreign investment security review. Attempts to circumvent Chinese regulation by re‑establishing operating entities overseas have proven ineffective.
3. Assess dual compliance challenges
Against the backdrop of the current U.S.-China “technology decoupling,” foreign enterprises may face dual constraints of national security reviews and export controls in both jurisdictions. As some scholars have noted, the Manus case reflects not only the dilemma faced by a single company, but the general predicament of AI startups in the global geopolitical competition landscape. Foreign enterprises’ global legal and compliance teams should closely track dynamic changes in China’s country‑specific restrictive legislation, including the Security Review Measures for Foreign Investment, the Data Security Law, and the Cybersecurity Law, systematically assess the regulatory pathways and security obligations of cross‑border transactions in both countries, and promptly adjust compliance responsibility allocation and exit mechanisms in contractual structures.
4. Embrace proactive compliance, not reactive compliance
The Manus case is that it did not begin with an unexpected ban, but rather followed a gradual accumulation of regulatory pressure. The failure to carefully assess Chinese legal risk management at an early stage, coupled with over‑reliance on offshore structures and technology outbound arrangements, ultimately led to irreversible transaction failure. Enterprises should integrate strategic advice from Chinese legal counsel from the outset of planning cross‑border M&A, and incorporate national security review risk as a core decision‑making dimension of the M&A plan, rather than treating it as a procedural afterthought.
China’s final decision to block Meta’s acquisition of Manus is an inevitable outcome against the backdrop of intensifying U.S.-China technological competition. For foreign enterprises operating in China, understanding and respecting this increasingly clear regulatory red line, and placing compliance system building at the strategic core of their business development, is the basic underlying logic for steady progress and successful investment in China.
Column Manager
Nancy Zhang
Founder and Managing Partner
Email: xeonzxy@163.com
Ms. Zhang is qualified to practice in P.R.C. and NY, USA. She holds master’s degrees in Economic Law and Financial Law and previously served as a visiting Lawyer in a chamber in London, UK. In 2015, Ms. Zhang was selected as a “Leading Foreign-Related Lawyer” by the All China Lawyers Association. In 2018, she was named among the “National Thousand Foreign-Related Lawyers” by the Ministry of Justice of China. She has received numerous accolades, including: “Golden Woman Lawyer” of Gulou District, Nanjing; “Digital Trade Innovation Figure” of Wuxi City; and “Outstanding Foreign-Related Lawyer” of Nanjing City.
Ms. Zhang currently serves as: Director of the Foreign-Related Rule of Law Research Society, Nanjing Law Society; Researcher at the Research Center for Foreign-Related Rule of Law and the Belt & Road Legal Development, China Rule of Law Modernization Research Institute; Member of the Young Arbitrators Committee, Singapore International Arbitration Centre (SIAC); Member of the Women in Arbitration (WIA) Group, Hong Kong International Arbitration Centre (HKIAC); Arbitrator at Hefei, Zhenjiang, Taizhou, Weifang, and Ma’anshan Arbitration Commissions; Mediator at the Mediation Center of the China Council for the Promotion of International Trade (CCPIT); Member of the Expert Library, Wuxi International Commercial Dispute Resolution and Intellectual Property Service Center.
