From the Manus Case: The Execution Logic and Compliance Insights of Foreign Investment Security Review
In January 2026, I wrote an article titled "Manus' Maritime Adventure - From the Perspective of a Compliance Lawyer on the Short-Term Trends of Technology Enterprises Going Global", summarizing and analyzing the overall background, possible reasons, and future direction of the Ministry of Commerce's review of Meta's $2 billion acquisition of the artificial intelligence platform Manus. I also provided compliance suggestions. On April 27, 2026, the Office of the Foreign Investment Security Review Mechanism (National Development and Reform Commission) announced the decision. The review matter finally came to a conclusion: The decision was made to prohibit the investment of foreign capital in the project of acquiring the AI intelligent entity company Manus in accordance with the law and regulations, and the parties were required to revoke the acquisition transaction. Subsequently, various practical issues emerged, and on the day after the announcement of the decision, media friends asked me: If the transaction between Meta and Manus has already been completed, since it involves two enterprises that are not Chinese companies, then how can this acquisition be revoked? Are there any specific legal mechanisms indicating how these two companies should be split (dissolve the merger)? Have there been any relevant precedents before?" I intend to respond and analyze these questions in this article, serving as a starting point for discussion. Additionally, I will also talk about the medium- and long-term trends or founders' thinking that this prohibition of investment decision may have on the internationalization paths of domestic enterprises.
01 Why is it the Office of the Foreign Investment Security Review Mechanism?
Let's rewind the clock to January 8, 2026. On that day, a reporter from South China Morning Post asked the spokesperson of the Ministry of Commerce, He Yadong, a question at a regular press conference: "There are reports that the Ministry of Commerce of China is reviewing the $2 billion acquisition of the artificial intelligence platform Manus by Meta, to determine if there are any violations of technology export control. Please tell us, what is the Ministry of Commerce's response?" He Yadong replied: "The Chinese government has always supported enterprises in conducting mutually beneficial and win-win cross-border operations and international technology cooperation in accordance with the law. It should be noted that enterprises engaging in foreign investment, technology exports, data export, cross-border mergers and acquisitions, etc., must comply with Chinese laws and regulations and go through legal procedures. The Ministry of Commerce will work with relevant departments to conduct an assessment and investigation on the consistency of this acquisition with relevant laws and regulations on export control, technology import and export, and cross-border investment." Due to the limited public information at that time, industry insiders were all analyzing and speculating about what "problem" this transaction might have? After all, the official named many fields such as foreign investment, technology exports, data export, and cross-border mergers and acquisitions, and also emphasized that the Ministry of Commerce would work with relevant departments to conduct consistency assessment and investigations in areas such as export control, technology import and export, and cross-border investment. It wasn't until April 27 that the Office of the Foreign Investment Security Review Mechanism officially made a statement, finally settling the matter: Foreign investment security.
Who is the Office for the Mechanism of Foreign Investment Security Review? According to Article 3 of the "Measures for Foreign Investment Security Review" (hereinafter referred to as the "Measures", Order No. 37 of the National Development and Reform Commission and the Ministry of Commerce, which came into effect on January 18, 2021):
The working mechanism office is located in the National Development and Reform Commission. It is led by the National Development and Reform Commission and the Ministry of Commerce, and is responsible for the daily work of the foreign investment safety review.
According to the provisions of Article 4 of this regulation, if foreign investment involves areas such as military industries, key infrastructure, important energy resources, key technologies, and important information technologies that may affect national security, the foreign investors must proactively report to this office; for cases where reporting is required but not made, the office also has the right to demand reporting and initiate a review. The review will ultimately make three decisions: 1) The investment can be implemented if it passes the security review; 2) It can be approved with conditions, and the investment must be carried out in accordance with the additional conditions; 3) The investment is prohibited, and it cannot be implemented. If the party refuses to report, provides false information during reporting, or fails to comply with the additional conditions, the office will order them to correct within a time limit. If they refuse to correct, they will be ordered to sell their equity or assets within a time limit or take other necessary measures to restore to the state before the investment was implemented, eliminating the impact on national security; and the party's behavior will be included as an adverse credit record in the relevant national credit information system and will be subject to joint punishment in accordance with national regulations.
Why did the Office of the Mechanism for Safeguarding Foreign Investment Security come forward? The author believes that there are mainly two considerations: First, from the strategic perspective of national security, it is necessary to make a final determination on whether this transaction can be carried out or not. In the macro context of the increasingly tense international geopolitical situation and the increasingly intense technological competition among major powers, this highlights the attitude and strength of our government in protecting the most core interests of sovereignty and national security. Second, under the framework of the foreign investment security review mechanism, the core conclusion of prohibiting foreign investment based on national security considerations can coexist with the accountability and punishment of specific violations and irregularities in the implementation process of the transaction by the relevant national departments and bureaus based on their respective responsibilities. Currently, there are no relevant reports on the specific illegal and irregular behaviors of Manus and its controllers in foreign investment, technology export, data export, and cross-border mergers and acquisitions, and we need to wait and see how things develop.
02 How will the decision for the parties involved to cancel the acquisition transaction be implemented?
Has the Meta acquisition of Manus been completed? According to reports from both domestic and foreign media and reasonable inference, this acquisition transaction has been completed. As the process was very brief, the extremely simple timeline is as follows: Meta announced the acquisition on December 30, 2025, and the transaction was completed around January 2026, meaning that the procedures such as fund transfer, equity delivery, and employee onboarding have all been implemented. From the content of the decision made by the Foreign Investment Security Review Mechanism Office regarding the prohibition of investment and the requirement for the party involved to revoke the acquisition transaction, it also confirms that this equity acquisition transaction has been completed.
Can the government's decision to revoke the acquisition transaction, based on the national security review, be implemented? I will analyze and answer this question from the following aspects. First, what is the basis for regulatory enforcement? The acquiring party of this equity acquisition transaction, Meta, is an American company, while the acquired party, Manus, is a Singaporean company. Both are foreign entities. Regarding the regulatory enforcement basis of our country, the English version of the People's Daily has already provided a clear explanation: The key lies in the degree of substantive connection between technology, talent, data and the domestic sector in China, rather than the current registration location of the company and the location of the team; Manus' early research and development, as well as its core data, originated from China. Even if its headquarters moved to Singapore and its Chinese IP was deactivated, the flow of personnel, technology and data still concerns China's industrial security. Second, does this constitute "long-arm jurisdiction"? Because both parties of the transaction are foreign enterprises and neither operates business within China, some foreign comments have defined the decision of the Foreign Investment Security Review Office to prohibit investment as a "typical case of long-arm jurisdiction". "Long-arm jurisdiction" originates from the judicial practice of the United States. In simple terms, it means "a country's law applies to something that seemingly has nothing to do with it". Its core feature is unilateralism and expansiveness. While our country follows the "substantive connection principle", that is, the behavior, subject or item being regulated must have a substantive connection with China. Manus' early research and development was implemented in China, its core data originated from China, and the core team was composed of Chinese people. Even though it later moved its headquarters to Singapore and reduced its Chinese team, the core assets - algorithms, data, and talents - all originated from China. The act of reviewing the transaction and making the decision to prohibit investment is in line with the concept and basic principles of "extraterritorial jurisdiction" in international law. Therefore, our country has not implemented "long-arm jurisdiction" in the context of the US judicial practice, but has exercised the inherent rights of national sovereignty. Third, is the decision to prohibit investment final? According to Article 59 of the National Security Law [1], Article 35 of the Foreign Investment Law [2], and Article 12 of the Foreign Investment Security Review Measures [3], if the Foreign Investment Security Review Working Office makes a decision to prohibit investment for the reported foreign investment, the party concerned shall not implement the investment, and if it has already implemented, it shall be required to dispose of the equity or assets within a time limit and take other necessary measures to restore to the state before the investment was implemented, eliminating the impact on national security, and the safety review decision is the final decision. This means that from the legislative perspective, administrative litigation and other legal remedies for the party concerned have been excluded, and the party concerned is not allowed to file administrative reconsideration or administrative litigation against the safety review conclusion. Fourth, what is the party's statement? As of now, there is no report of either party publicly challenging the decision to prohibit investment. Additionally, mainstream foreign media such as The Wall Street Journal have reported that Meta is preparing to revoke this acquisition case; at the same time, Asian institutional investors such as Tencent, Sequoia, and True Fund have also stated that if Meta continues to proceed with the revocation, they are willing to cooperate.
Has there been any precedent for implementing the decision to revoke the acquisition transaction? First, prohibiting Meta from investing in Manus is the first time that the National Development and Reform Commission has publicly made a decision to prohibit investment and require the revocation of the transaction since the implementation of the "Foreign Investment Security Review Measures" in 2021. It is also the first foreign investment acquisition case in the AI field to be publicly halted in China. From this perspective, there are indeed no similar precedents for reference and learning. Secondly, there was a precedent in history where an overseas capital acquisition of a domestic enterprise was halted by the highest regulatory authority - the case of Carlyle Group of the United States acquiring Xugong Group. From 2005 to 2006, the Carlyle Group planned to acquire 85% of the equity of Xugong Machinery, which triggered nationwide discussion due to disputes over foreign absolute control and the sale of state-owned assets at a low price. Under the pressure of public opinion, Carlyle made two concessions and reduced its shareholding to 45%. However, the agreement was not approved by the government for a long time and was ultimately terminated in July 2008. This precedent differs significantly in terms of the decision-making path and the progress of the acquisition from the content of this article. The execution details can offer limited reference value, but both reflect the core bottom line of national security review: once the national security (interests) red line is triggered, the transaction is not allowed.
What are the legal mechanisms and framework for implementing the decision to revoke an acquisition? Firstly, from a legal perspective, the core consequence of revoking a legal act is that the act has no legal binding force from the very beginning, which is known as "invalidity retroactively", and the direct consequence is that all parties involved return to the state before the act was carried out. Secondly, according to Article 12 and Article 13 of the "Measures for the Safety Review of Foreign Investment", for parties that have made investments but are prohibited from doing so, they should be required to dispose of their equity or assets within a specified time limit and take other necessary measures to restore to the state before the investment was made, eliminating the impact on national security. This should be supervised and implemented by the working mechanism office in conjunction with relevant departments and local governments. It can be seen that from the perspective of laws and regulations and departmental rules, there is no specific provision for the implementation framework of revoking the acquisition decision to be detailed and clarify the specific contents. However, regarding the core elements that the implementation framework may involve, specific provisions of relevant laws and regulations can be found, and there are also abundant practical experience that can supplement the omissions and shortcomings in it.
How to implement the prohibition decision on the cancellation of the acquisition? If "restoring the original state" is set as the main goal, the parties executing the decision to cancel the acquisition can plan the specific execution steps from the following four dimensions. First, at the level of agreements and procedures. All parties sign written termination agreements, revoke the acquisition and all related supporting documents (including shareholder agreements, technology transfer agreements, etc.), and terminate all binding legal obligations. If Meta has completed the equity transfer, it must transfer all the equity back to the original shareholders and complete the registration of the change of the overseas entity. Second, at the level of funds and compensation. The original shareholders of Manus (including founders and investors) must return the approximately 2 billion US dollars of compensation they have received in full to Meta. Third, at the level of data and technology. Meta must delete the domestic user data, training data, and business data it has used, and issue a deletion certificate; Manus should restore the local storage of data and terminate all cross-border transmission channels; all the technical documents and code copies transferred to Meta must be destroyed, and Meta is prohibited from using any Manus algorithms or models. Fourth, at the level of personnel and management. All the management and technical personnel dispatched by Meta must evacuate, terminate all management agreements involving control rights, and ensure that the domestic entity fully resumes independent operation. Additionally, from the perspective of supervising the implementation of the decision, a cross-departmental supervision coordination mechanism needs to be formed. The National Development and Reform Commission can work with the Ministry of Commerce, the Cyberspace Administration of China, the Foreign Exchange Administration and other relevant functional departments, and collaborate with the local government to strengthen on-site verification and supervision of domestic companies and personnel; if the decision is not implemented within the prescribed time limit, the regulatory authorities can take measures such as imposing fines, restricting domestic business, and pursuing the legal responsibility of individuals. Additionally, the influence on the overseas entity can also be strengthened through the approach of foreign investment business access.
03 Impact on Domestic Enterprises' Overseas Expansion Journey and Practical Suggestions
After Meta's acquisition of Manus was prohibited from making investments and the transaction was cancelled, the following trends are worth paying attention to:
Trend 1:
In the early stage of internationalization, enterprises must carry out substantive cross-border separation of their R&D entities, data storage, and intellectual property ownership, rather than merely "changing the shell afterwards". The possible ways of cross-border separation include: establishing independent overseas R&D centers, cultivating overseas teams from scratch, and using completely independent non-Chinese data sources. The founders of the enterprises need to understand that merely moving the company's registration to an overseas location (such as Singapore or Cayman Islands), dismissing the domestic Chinese team, ceasing the use of Chinese IP, and not conducting early-stage R&D in China cannot sever the "blood ties" between technology and China. The regulatory eyes are penetrating and examining the essence: Who developed the core algorithms? Where did the training data come from? Where was the early-stage R&D conducted?
Trend Two:
The founders will be more inclined towards: conducting an independent overseas IPO (in Hong Kong, Singapore, or the United States), maintaining a dispersed control structure; adopting a technology-based tiered licensing approach (Licensing) for business arrangements rather than outright ownership transfer; splitting the domestic and overseas businesses, placing non-sensitive operations in the overseas listed entity, and keeping the "sensitive" operations independently developed within the domestic entity. Founders must understand that: in the past, many people's dreams were acquired at high prices by American giants (through "selling out for money + joining the management of top international industry companies"). After this case, as long as your underlying technology, core talents, and data are rooted in China, selling to foreign giants will face extremely high risks of transaction bans and personal property risks.
Trend Three:
The founder must hire a compliance consultant during the A-round financing to review whether the potential exit paths in the future will cross the safety and compliance red line, and add a special disclosure clause about "China's security review risks" in the investment intention letter. The founder should understand that: "Doing it first and then worrying about being checked is a thing of the past." The Manus case shows that even after the transaction is completed, it can still be traced back and stopped, and the "restoring to the original state" execution ability is astonishing - the 2 billion US dollars already paid must be returned to the selling shareholders in their original route, and the technology and data must be deleted and subject to on-site verification.
Finally, there are three compliance suggestions that we hope will be helpful for the overseas companies and their founders:
Suggestion One:
Establish a mandatory "China Security Review Impact Assessment" node. For any transaction that plans to transfer Chinese-related assets (technology, data, team) to foreign entities directly or indirectly, a pre-assessment of security review must be initiated before the transaction negotiation begins. If the assessment is of medium to high risk, one should proactively consult or report to the "Foreign Investment Security Review Working Office" of the National Development and Reform Commission. Do not consider oneself exempt by citing the reason that "both parties of the transaction are foreign companies".
Suggestion Two:
In the transaction documents, "reversible transaction structure" and "reverse break-up fee" should be designed. In the merger and acquisition agreement, it is necessary to preset the exit path prohibited by China's security review and clearly state it in the legal documents. For example: Set the approval of China's security review as a pre-condition for the closing, and reserve a review time window to avoid conflicts with the closing deadline; In the agreement, stipulate the split and restoration clause to prevent the situation where the transaction is completed before being investigated; Store part of the transaction consideration in a third-party account and release it only after the completion of the security review or data deletion, to ensure the execution capability; For "reverse break-up fee", the proportion can refer to the industry practice of 10%-30%, and set different rates for "seller reasons" and "regulatory reasons".
Suggestion Three:
Implement a triple-layer compliance barrier of "technology - data - personnel". For Chinese technology enterprises that already have or plan to have cross-border business, they should establish a physical isolation wall with overseas entities as early as possible through technological isolation (such as independent code repositories and separate version branches for domestic and overseas entities), data isolation (such as purchasing public data sets from overseas or conducting local data collection), and personnel isolation (such as key technical personnel not holding positions in overseas companies simultaneously and clearly stipulating the ownership of technical achievements in the domestic position). This will prevent being identified as "originating substantially from China".
04 Conclusion
The final outcome of the Manus case is not merely a decision to prohibit investment, but rather a profound declaration about technological sovereignty and the rules of the era. It marks that national security reviews are no longer just a symbolic system on paper, but a set of enforceable, traceable, and capable of restoring the original state legal weapons. The Office of the Mechanism for Foreign Investment Security Review issued the first red card for completed cross-border acquisitions, demanding that the selling shareholders return $2 billion in consideration, that the buyer delete all data and technical documents, and that both parties return to the original point of the transaction. This is not an isolated enforcement action, but the establishment of a paradigm: the "origin" of technology is more legally significant than the "registration location" of the company, and the "root" of innovation is more concerned about by sovereignty than the "wings" of capital. For those entrepreneurs who once fantasized about "changing the shell and going overseas" to bypass regulation, this warning bell pierced through the fog of侥幸. Early research， core algorithms， Chinese data， local teams - these inseparable "substantive connections" will eventually become the coordinates for regulatory penetration through all complex structures.
The future path of internationalization will no longer be the uncontrolled and haphazard growth of "doing it first and then worrying about the consequences". Instead, it will be a meticulous voyage that requires embedding compliance genes from the very first round of financing. A deeper insight lies in the fact that the strategic vision of Chinese entrepreneurs must shift from "who to sell to is more expensive" to "how to make the roots grow deeper and the branches and leaves spread further". Independent IPOs, technology licensing, and cross-border splits are replacing "selling oneself to the giants" as the new exit logic.
Compliance is the moat protecting corporate value and the passport granting national trust. When challenges become the norm, the power to steer the course comes from early segmentation, proactive assessment, and reversible structures. The Manus case tells us: Only technology that respects rules can achieve steady progress and long-term success; only innovation rooted in sovereignty can lead to global expansion.
Footnote:
Article 59: The state shall establish a system and mechanism for national security review and supervision. It shall conduct national security reviews on foreign investment, specific items and key technologies, network information technology products and services, construction projects involving national security matters, as well as other major matters and activities, in order to effectively prevent and defuse national security risks.
[2]. Article 35: The state establishes a foreign investment security review system to conduct security reviews on foreign investments that may affect or already affect national security. The security review decisions made in accordance with the law shall be final.
[3]. Article 12: If the Working Mechanism Office of the State Council decides that an application for foreign investment has passed the security review, the applicant can proceed with the investment; if it decides that the investment is prohibited, the applicant shall not carry out the investment. If the investment has already been implemented, it must be disposed of the equity or assets within a specified period and take other necessary measures to restore the situation to that before the investment was implemented, eliminating the impact on national security; if it decides to pass the security review subject to conditions, the applicant shall implement the investment in accordance with the additional conditions.
