For ambitious young tech entrepreneurs building cutting-edge artificial intelligence tools, the intersection of innovation and great power competition has long been a risky tightrope. Now, the collapsed acquisition of AI agent platform Manus by US tech giant Meta stands as one of the clearest cautionary examples of how geopolitical friction between the world’s two largest economies can upend even the most promising startup journeys.
The story of Manus begins in 2022, when Beijing-based startup Butterfly Effect launched to build AI-powered tools that can complete end-to-end tasks for users. By early 2025, ahead of Manus’ official public launch, the startup had already captured global tech industry attention. More than 3.5 million users rushed to secure early access invitation codes, with some rare codes reselling for thousands of dollars on secondary online markets. Chinese state media even celebrated Manus as a standout example of homegrown Chinese technological innovation, positioning the startup as a potential global leader in the fast-growing AI agent space.
The momentum continued in May 2025, when leading US venture capital firm Benchmark Capital led a $75 million funding round that valued Butterfly Effect at nearly $500 million. At the time, it looked like CEO Xiao Hong’s goal of building a globally recognized Chinese AI company was well within reach. “In a world untouched by geopolitical tension, the Manus story would be a straightforward tale of an extraordinary startup earning a transformative big exit,” noted Kyle Chan, a technology policy researcher at the Brookings Institution, in an interview with AFP.
But the startup’s trajectory shifted dramatically just months after its launch. In mid-2025, Butterfly Effect cut dozens of roles at its Beijing and Wuhan offices, relocated all core leadership and engineering teams to Singapore, blocked access to the platform for Chinese users, and deleted all its official presences on Chinese social media. The relocation strategy, often referred to colloquially as “Singapore-washing,” has become a common path for Chinese startups seeking easier access to international capital and global user bases while distancing themselves from Beijing’s regulatory and political oversight.
However, a source familiar with Butterfly Effect’s internal decision-making told AFP that the full relocation was not the company’s original plan. The shift was triggered by an unexpected US investigation into Benchmark Capital, launched under Washington’s 2025 Outbound Investment Security Program, which restricts American investment in Chinese companies operating in sensitive sectors including artificial intelligence, semiconductors and quantum computing. What was initially supposed to be a small US-facing team based in Singapore became a full relocation of all company operations, the source added. AFP reached out to Butterfly Effect for official comment on the report but received no response.
By the end of 2025, the deal that would bring Manus into the global spotlight was announced: Meta, the parent company of Facebook, Instagram and WhatsApp, confirmed it would acquire the Manus team for a reported $2 billion, marking the third-largest acquisition in Meta’s corporate history, following its purchases of WhatsApp and Scale AI. “We’re excited about what the future holds,” Xiao said at the time of the announcement.
Almost immediately, regulatory headwinds began to build. Beijing has long pushed for its top homegrown tech startups to pursue public listings on domestic exchanges in Hong Kong and Shanghai, rather than relocating overseas, cutting domestic jobs and selling to foreign firms, Chan explained. By March 2026, reports emerged that Chinese regulators had launched a national security review of the Meta acquisition, and had even barred two Singapore-based Manus co-founders from leaving mainland China.
In April 2026, China’s top economic planning body issued a formal ruling blocking the transaction. Under 2021 national security regulations that give regulators authority to review all foreign investments for potential risks to state security, the agency prohibited the foreign acquisition and ordered all involved parties to unwind the transaction completely.
Industry observers say Beijing’s decision stemmed from concerns that allowing a leading Chinese-born AI startup to transfer its top talent and core technology to a major US corporation would set a problematic precedent that could undermine China’s growing AI industry. Beijing’s move also sent an unambiguous message that attempting to distance startups from their Chinese identity via overseas relocation is no longer a viable strategy, said Sherlock Xia, a corporate tech lawyer at Yenlex Law Firm.
After months of negotiations and regulatory pressure, Manus officially confirmed its separation from Meta this week in a public statement posted to the company’s website. “We will soon return to operating as an independent company,” the statement read. “This is part of our separation from Meta; we must take this step to comply with regulatory requirements in specific parts of the world.” Prior to the official confirmation, The Wall Street Journal reported that Meta was already preparing to walk away from the deal, a complex reversal that required returning investor payouts from the original transaction. Bloomberg also reported in June that Meta had already cut off the Manus team from access to its internal engineering systems as the unwinding process moved forward.