The Chinese government’s sudden intervention in Meta’s Manus reignites the debate about “shedding China”

When the tech world from Silicon Valley to Shenzhen began to stir meta Late last year, it acquired Manas, a Singaporean AI startup with Chinese roots, for $2 billion.

For Chinese founders seeking to develop products that rival their U.S. peers, the deal felt like proof that a complex offshore structure known as “Singapore washing,” in which companies move to the city-state, is the answer to avoiding scrutiny from both Beijing and Washington.

Those hopes were quickly dashed by China’s sudden intervention in the deal within days, as the Chinese government stepped up efforts to prevent Chinese AI founders from moving their businesses overseas.

The Financial Times reported earlier this week that the Chinese government has begun reviewing whether Manus’ sale violates laws governing technology exports and foreign investment, and has barred co-founders Xiao Hong and Ji Yiqiao from leaving China for Singapore.

Founded in China, Manas moved its headquarters and core team to Singapore last year, giving it access to a deeper pool of funding from overseas investors, including San Francisco-based venture capital firm Benchmark. The company captivated Silicon Valley with its AI agents that can build websites and perform basic coding tasks independently.

But the investment came under fire from U.S. lawmakers, who banned U.S. investors from directly supporting Chinese AI companies in mid-2025.

Beijing’s expanded review has stoked concern and confusion among a generation of Chinese tech founders and venture capitalists who have quietly embraced the so-called “Singapore washing” model, forcing liquidation amid deepening U.S.-China tech competition.

“The path that Manus took, I don’t think people will go down that path anymore,” said Wayne Xiong, managing partner at Argo Venture Partners, a Silicon Valley-based AI seed investor.

Xiong told CNBC that more founders are now looking to start outside China on “day one” before any meaningful research and development takes place in China, rather than making a structural shift mid-growth.

“Founders aiming for global expansion and higher valuations will still see an upside to having backers in the U.S.,” Shiong added. Chinese AI startups tend to be valued at a fraction of their U.S. peers.

Manas’ acquisition comes as tensions between the U.S. and China in the AI ​​space intensify, with competition increasingly defined not just by access to advanced chips but also by the flow of talent and technology.

Yuan Cao, a lawyer at the Beijing-based Yingke Law Firm, said it was a “red flag for Beijing” for companies to develop technology in China at an early stage before “transferring assets to overseas entities through reorganization.”

In such cases, “where the product is manufactured is more important than where the holding company is registered,” Cao said.

“‘Singapore washing’, or simply setting up a company locally and employing a small number of local staff, is never enough,” said Matthias Hendricks, a Singapore-based advisor to a global AI company.

“Entire teams have to move, the customer base has to migrate, and early Chinese investors typically have to exit their positions,” Hendricks said.

The Manus deal also served as a wake-up call for tech investors betting that offshore structures can protect promising Chinese startups from the clutches of the Chinese government.

Alex Ma, managing partner at Singapore-based family office Alpha Omega Holdings, said Chinese authorities “will ignore the surface in Singapore and dig into the roots of the company, including the code, data and people.”

But the Chinese government may also not want to “excessively punish success” because that would discourage founders and distort incentives,” Ma said, remaining positive that companies will continue to seek new compliance avenues in the wake of the Manus scandal.

It remains unclear what further measures the Chinese government will take in addition to banning the founders from leaving the country, or whether it will order Metamanus to unwind the deal.

The deal was completed in early March with more than 100 Manus employees moving to Meta’s Singapore office while the Chinese government continued to review the deal, according to people familiar with the matter.

“The transaction fully complied with applicable law, and we look forward to an appropriate resolution to the investigation,” a Mehta spokesperson said in an emailed response to CNBC. China’s Ministry of Foreign Affairs, the Chinese Embassy in Singapore, and Mr. Manus did not respond to requests for comment.

Hendricks said it would be “very difficult” for Meta if the Chinese government wanted to terminate the agreement, as the US tech giant rushes to integrate with Manus amid fierce competition in the sector.

Even for startups that were initially incorporated outside China, the Chinese government’s actions added further uncertainty to an already opaque regulatory system.

Among the unanswered gray areas was whether outsourcing work to a China-based team constituted a technology export violation. Outsourcing has become popular among Chinese tech founders overseas because of its benefits, including cost savings and tapping into the country’s deep and affordable pool of technical talent.

China’s cyberspace regulators have scrambled to regulate the rapidly growing sector in recent years, but have struggled to stay ahead of technology that is advancing faster than the rules designed to govern it.

Allen Wang, co-founder of Singapore-based AI startup Cognitio Labs, said that sometimes clarity only comes when an incident is salient enough to attract the attention of the government. The Chinese founders established the company in Singapore earlier this year after residing there for more than 10 years.

When asked whether outsourcing to China would be an option for his company, Wang bluntly replied, “I won’t know until it’s big enough.”