Manus plight: Should AI companies start in China or overseas?

On 25 March, the Financial Times reported that the Chinese government has restricted the two co-founders of AI startup Manus from leaving the country, as regulators review whether Meta’s over US$2 billion acquisition of Manus violates investment regulations.

When asked about the situation at a regular press conference, a Chinese foreign ministry spokesperson neither denied nor confirmed the foreign media reports, stating, “I’m not familiar with that. I’d refer you to competent authorities.”　

China’s Ministry of Commerce last commented on Manus in January this year. At the time, a spokesperson said the ministry would work with relevant departments to assess and investigate whether the acquisition complies with laws and regulations on export control, technology import and export, and overseas investment.

The spokesperson also stressed that enterprises engaged in overseas investment, technology export, cross-border data transfer, cross-border mergers and acquisitions, among others, must comply with Chinese laws and regulations and fulfil statutory procedures.

Manus is not the first AI agent, nor does it possess the kind of hardcore foundational technological breakthroughs in architecture, algorithms or efficiency seen in DeepSeek. However, as China-US AI competition has entered a strategic phase centred on “national security”, the acquisition of a Chinese-linked AI company by an American tech giant — even without hardcore underlying technology — is unlikely to avoid close official scrutiny.

Manus was launched in March last year. Founded in Beijing, its parent company Butterfly Effect moved its headquarters to Singapore after securing US investment last year, while cutting its China-based workforce and winding down operations in China. Observers believe these moves were intended to circumvent US investment restrictions in China, while also avoiding Chinese regulatory oversight.

After Singapore-based Manus founder and CEO Xiao Hong and chief scientist Ji Yichao met officials from China’s National Development and Reform Commission in Beijing and were subsequently barred from leaving the country, the “escape” route used by tech firms appears to have been closed off by the authorities, making it difficult for other Chinese tech companies to replicate this model in future.

The fact that a business acquisition escalated to the founders being barred from leaving the country may sound surreal, but for experts familiar with China’s national conditions, Manus’s exit was never expected to be smooth.

In January, Cui Fan, a professor at the University of International Business and Economics’ School of International Trade and Economics, highlighted two points on his WeChat account. First, there is no confirmation that Manus’s core team members have renounced their Chinese nationality, nor that they are no longer subject to Chinese law as natural persons. Second, under China’s existing Regulations on Technology Import and Export Administration (《技术进出口管理条例》), does it involve the export of technology that is prohibited or restricted without permission?

Meanwhile, the Fudan Finance Union’s School of M&A published a series of articles titled “A ‘Nora Question’ for a Chinese AI Company Going Abroad”, examining from multiple angles why Manus had little choice but to expand overseas.

Key points include: one, Manus charges relatively high fees, so its main clients are overseas; the Chinese market tends to “buy labour rather than knowledge”. Two, the Chinese-language market — including both simplified and traditional Chinese — numbers less than 2 billion, whereas the English-speaking market has 6.5 to 7 billion people, a significant difference in the fee-paying market. 

Three, Manus sources AI services from providers such as OpenAI and Google, which do not offer services to mainland China or Hong Kong. If Manus remained a Chinese company, using these services to sell overseas could violate US laws. Four, micro, small and medium enterprises are the main driving force behind high-tech original innovation, but private firms face financing difficulties; tech investment is concentrated in top-tier companies, leaving smaller firms underfunded.

In other words, Manus’s overseas expansion is driven by legitimate commercial interests and risk-avoidance considerations.

However, the intervention by China’s commerce ministry sends a clear signal: trying to “rebrand” through a third country will not work. While technology may be borderless, talent is tied to nationality, data is subject to sovereignty, technology reflects its origins, and capital too has borders. 

A Singaporean or American registration cannot change a company’s fundamentally “Chinese background”, especially amid intensifying China-US strategic rivalry. The labels attached to people and assets, whether tangible or intangible, are no longer neutral, but sharply defined.

How will the deadlock be broken? The Chinese government’s response, Meta’s stance and Manus’s position will all determine how this landmark case concludes. It will also set a precedent for handling similar incidents in the future.

Both China and the US have elevated AI to the level of a national strategic resource, using their own tools to firmly safeguard the boundaries of what they regard as strategic assets. The US relies on the Committee on Foreign Investment and the Entity List, while China employs export control catalogues and outbound restrictions. 

In the future, companies — especially tech firms — will find it increasingly difficult to play both sides and escape geopolitical constraints. In the end, they may find themselves like the mythological character Zhu Bajie from Journey to the West, caught in the middle of China-US AI rivalry, pleasing neither side.　

The biggest lesson the Manus incident offers private Chinese tech firms is this: they must decide on a clear development path from the outset. Either anchor themselves in the domestic market, in the hopes that the government will reshape the market environment — encouraging consumers to pay for technology and knowledge, improving the business climate, curbing destructive competition, and easing the financing difficulties faced by private firms; or go fully international from the very beginning, with talent, technology, teams and data all established overseas.

Ironically, AI ought to transcend national borders and flow freely to every corner of the world, bringing greater convenience to all. Yet while technology, capital and talent once moved relatively freely under globalisation and drove global development, in the AI era this very freedom will instead gradually become a thing of the past, curtailed by man-made barriers.

This article was first published in Lianhe Zaobao as “Manus“娜拉出走”被卡”.

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