The Manus Case And The New Outbound Investment Rules —Transforming Unilateral Compliance Pressure Into Balanced Bilateral Compliance

On April 27, 2026, the proposed acquisition of Chinese AI company Manus by Meta was blocked by the Foreign Investment Security Review Working Mechanism Office (the National Development and Reform Commission). On June 1, the State Council promulgated the Provisions of the State Council on Outbound Investment (State Council Order No. 837, effective July 1, hereinafter the “New Outbound Investment Rules”), formally codifying “overseas investment security review” in administrative law.

Multinational corporate counsel and investors have been asking us: What signal do these moves send? Is China’s attitude toward foreign investment changing? As a law firm with a long-standing focus on cross-border investment and compliance, we offer the following analysis of the policy logic behind the Manus case and the New Outbound Investment Rules, in the hope of providing clarity during this period of policy evolution.

I. The Specificity of the Manus Case: Why Was This Transaction Blocked?

To understand the case, one must first revisit the publicly available timeline:

- March 2025: Manus gained rapid traction with its general-purpose AI Agent capabilities, raising USD 75 million led by Silicon Valley firm Benchmark at a USD 500 million valuation.

- May 2025: The U.S. Department of the Treasury launched an investigation under the Outbound Investment Security Program (OISP) into Benchmark’s investment in Manus.

- June—July 2025: Manus’s parent, Butterfly Effect, relocated its headquarters to Singapore, downsized its team from 120 to roughly 40, suspended domestic services, and blocked Chinese IP addresses.

- December 2025: Meta announced a USD 2 billion acquisition of Manus.

Based on publicly available information, the regulator’s concern lay not in the foreign acquisition of equity in a Chinese enterprise per se, but rather in the manipulative structure of the transaction: an enterprise whose core technology, R&D team, and user base were all rooted in China, yet which—under unilateral U.S. compliance pressure—stripped away its Chinese identity through “redomiciliation, layoffs, and severance of domestic operations,” ultimately to be sold to an American tech giant as a “non-Chinese entity.” This industry pattern has been termed “whitewashing” offshore restructuring—using a change of registration jurisdiction to wash away Chinese attributes in order to satisfy external compliance demands.

The decision to block the transaction was not aimed at Meta’s identity as a foreign buyer, but at this one-sided, decoupling-driven exit strategy. Were such maneuvers to become a template, it could spawn further cases of “hollowing-out” asset transfers in sectors where the United States has already imposed investment restrictions on China. The key to understanding the Manus case, therefore, lies in recognizing that the Chinese regulator was not erecting new barriers, but rather converting unilateral compliance pressure imposed by the United States into a predictable, bilateral equilibrium.

II. The Three-Layer Logic Behind China’s Regulatory Policy

To understand why this particular transaction crossed the red line, one must place it within the broader framework of U.S.-China technological and institutional rivalry. Drawing on public statements by the Ministry of Commerce, official announcements of the security review decision, and the text of the New Outbound Investment Rules, we observe that the regulator’s policy logic operates on at least three levels:

(1) Technology sovereignty and industrial-chain integrity. Artificial intelligence, semiconductors, and quantum information have become focal points of great-power competition. Through OISP and the COINS Act, the United States has expressly restricted the flow of American capital and specialized expertise into these sectors in China. If China left its regulatory flank unguarded, it would create an objective asymmetry—a one-way drain where the U.S. restricts outbound capital while China permits the unrestricted offshore transfer of its core assets. Regulatory intervention is, in significant measure, a response to this asymmetry.

(2) Data and information security. The companies in question have accumulated substantial domestic user data and industry-sensitive information. When such firms attempt to sever their legal nexus to China through rapid redomiciliation, questions of data ownership and security protection naturally fall within the regulator’s purview.

(3) From unilateral passive decoupling to balanced bilateral compliance. It is worth noting that the starting point of this case was unilateral U.S. restriction on investment in China. China’s response does not appear to be an active expansion of regulatory scope, but rather a signal that enterprises cannot resort to “de-Sinicization” as their default compliant path when navigating unilateral external constraints. In other words, the policy intent appears to be the conversion of unilateral compliance pressure into a framework within which enterprises are encouraged to seek balance under bilateral rules, rather than simply to close the door.

Core Regulatory Red Line: The regulatory barrier is erected against the passive transfer of industrial core assets under unilateral pressure, not against the normal influx of foreign capital into the Chinese market.

III. The Significance of the New Rules and Practical Implications for Enterprises

The New Outbound Investment Rules will enter into force on July 1. From a legislative perspective, the draft was already approved at the State Council’s Executive Meeting on April 17—before the Manus decision—so it was not a hasty reaction. Nonetheless, the market perceives its enactment as an institutionalization of the substance-over-form review logic exemplified by the Manus case, translating it into a stable, long-term framework. For enterprises, the core significance lies in two aspects:

First, security review is moving from ad hoc cases to an institutionalized process. The Rules explicitly provide for a sound overseas investment security review system, under which overseas investments and asset transfers affecting national security will be subject to review. This means that future transactions similar to the Manus case will face more predictable statutory procedures rather than sporadic, case-by-case handling. For foreign investors, this substantially mitigates policy uncertainty, providing much-needed clarity on the scope of transactions subject to review.

Second, the boundaries of technology export are now clearer. The Rules emphasize that technology, data, and related services subject to export restrictions may not be transferred abroad without permission. This provides a clear compliance coordinate for enterprises dealing with core technology, enabling them to determine at an early stage whether filing procedures are required.

Based on the above, the following directions merit attention from multinational enterprises:

(1) Routine M&A and financial investment channels remain open. The Ministry of Commerce has consistently emphasized that China “supports enterprises in conducting cross-border operations in accordance with law.” So long as a transaction does not involve shell-like transfers of core control rights or “de-Sinicization” asset reshuffling in sensitive sectors, the channel for foreign investment into China remains unobstructed.

(2) Red-chip structures do not equal decoupling. What the regulator targets is the use of offshore structures to deliberately peel away core assets and evade Chinese legal obligations. If an enterprise’s technology source, core data, and principal R&D activities maintain substantive ties with China, and necessary filing procedures are fulfilled, an overseas listing per se is unlikely to automatically trigger a national security review, provided that substantive regulatory compliance is maintained.

(3) Substance-over-form review requires early substantive assessment. Both the Foreign Investment Security Review Measures and the New Outbound Investment Rules repeatedly stress “substance over form.” Merely changing registration to Singapore or the Cayman Islands does not guarantee insulation from Chinese law. When designing transaction structures, enterprises should assess the actual situs of technology and data at an earlier stage.

(4) Ex-ante security review for sensitive-sector transactions. If a transaction involves artificial intelligence, semiconductors, quantum information, or other sensitive sectors, and is coupled with “decoupling-style” arrangements such as headquarters relocation, core-team layoffs, or cessation of domestic operations, early engagement with the competent authorities may prove far more efficient than ex post remediation.

IV. Conclusion

The Manus decision and the New Outbound Investment Rules mark China’s entry into a new stage of more refined and systematic regulation of cross-border investment. A dispassionate reading of the publicly available information suggests that the thrust of these changes is not to “reject foreign investment,” but to safeguard industrial-security bottom lines against a backdrop of intensifying unilateralism.

From an enterprise perspective, the codification of rules is welcome news. Once review criteria are enshrined in administrative regulations, firms can conduct compliance assessments at the transaction-design stage, rather than relying solely on subjective guesswork about policy winds. Future cross-border investment will demand equilibrium within a more complex geopolitical environment. Understanding that the regulator’s primary concern is not “who is buying,” but rather “how core assets might be hollowed out under external unilateral sanctions,” can help the market build more robust expectations for investing in China.

We look forward to continuing this discussion in the context of specific transactions. If you are evaluating a cross-border transaction involving Chinese core assets, we stand ready to assist you in navigating this evolving regulatory landscape.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.