China blocks Meta's $2 billion AI deal, flags security concerns

New Delhi, April 29 (IANS) China has blocked Meta’s proposed $2 billion acquisition of artificial intelligence startup Manus, citing national security concerns, in a move that signals tighter regulatory scrutiny of cross-border technology deals, a new report has said.

According to a report by Modern Diplomacy, the National Development and Reform Commission (NDRC) ordered the transaction to be unwound under foreign investment security rules introduced in 2021, which underscores Beijing’s increasing control over the transfer of domestic technology and talent to overseas firms.

The decision was driven not by the company’s place of incorporation but by its underlying links to China, including technology development and data security considerations, it said.

Moreover, the development has highlighted China’s stance against the transfer of sensitive AI capabilities to foreign entities, particularly US-based companies and expected to raise caution among global investors evaluating similar deals.

Moreover, Manus -- an emerging player in the AI space -- had attracted funding from US investors and later shifted its base overseas.

However, Chinese authorities reportedly took a stricter view of the company’s continued ties to domestic talent and infrastructure, the report said.

It further stated that as part of the regulatory action, the deal between Meta and Manus is set to be reversed, a process likely to involve unwinding equity transfers and returning capital and intellectual property, a complex exercise in knowledge-intensive sectors such as AI.

The move reflected broader challenges faced by Chinese-origin technology firms seeking global expansion, as regulatory oversight intensifies in strategic sectors, according to the report.

The case signals that companies with significant operational or technological links to China may remain subject to domestic regulations regardless of where they are incorporated.

The development expected to heighten perceived risks in cross-border acquisitions, particularly involving US buyers, and could prompt investors to seek clearer separation of operations, intellectual property and research activities in future deals.

--IANS