The Meta–Manus Veto and the Rise of ‘National Security Unbound’: Tech-Sector Investment Screening and the Reshaping of International Investment Law
Author: Dr Yating Lin (Postdoctoral Fellow, City University of Hong Kong)
Introduction
On 27 April 2026, the Office of China’s Foreign Investment Security Review Working Mechanism (housed within the National Development and Reform Commission, NDRC) issued a public notice prohibiting the proposed foreign investment in Manus — the agentic AI start-up that Meta had announced it would acquire in December 2025 for around US$2 billion — and ordering the parties to unwind the transaction. Manus had been founded by three engineers in China; although the parent company was originally Chinese, the group had been re-incorporated offshore and was operating in China as a foreign-invested enterprise. By the time of Meta’s acquisition announcement, Manus’s parent — Butterfly Effect — had reincorporated in Singapore, and Meta had committed publicly that the company would discontinue services and operations in China, with ‘no continuing Chinese ownership interests in Manus’. Following Meta’s announcement, however, China’s Ministry of Commerce (MOFCOM) stated at a regular press briefing that it would assess whether Manus’s migration of staff and technology to Singapore, and the subsequent sale to Meta, complied with Chinese rules on export control, technology import and export, and outbound investment. Four months later, the NDRC announced the prohibition.
The Manus Case: Substance over Form
The corporate path travelled by Manus has become familiar over the past several years. Technology companies with Chinese origins have, in some cases, relocated the parent and principal operating subsidiaries to a foreign jurisdiction so that any cross-border sale is ultimately affected at the level of the offshore parent, leaving no Chinese-incorporated entity in the deal documents. This kind of structural design is intended to circumvent two layers of Chinese regulatory oversight: the approval and filing requirements applicable to the acquisition of domestic enterprises by foreign investors, and the market-entry regime administered by the commerce authorities.
The Meta–Manus prohibition demonstrates that a transaction thoroughly externalised in legal form may nonetheless be drawn back within the perimeter of Chinese foreign-investment security review. Rather than approaching the case through any single instrument of technology-export administration, the NDRC applied a substance-over-form analysis — an approach also adopted by the Committee on Foreign Investment in the United States (CFIUS) — to determine the operational nexus between Manus and China and assess the transaction’s overall implications for national security.
Two regulatory frameworks are clearly engaged. First, the Foreign Investment Law and its implementing Measures for the Security Review of Foreign Investment provide that ‘foreign investment that affects or may affect national security shall be subject to security review’. Article 2 captures foreign investment effected ‘directly, indirectly, or through other means’ - a tripartite formulation drawing Variable Interest Entity (VIE) structures, ‘Red-chip’ listings and overseas Special Purpose Vehicle (SPV) acquisitions within a single review perimeter.[1] The ‘other means’ residual is designed precisely to absorb structures of the Butterfly Effect type. Where the target’s core business or technology has a substantive connection with China that bears on national security and national interest, the transaction is reviewable even if effected through an overseas vehicle.
Second, the Export Control Law imposes licensing on goods, technologies and services whose export bears on national security. In 2023, the Catalogue of Technologies Prohibited or Restricted from Export was revised to add AI-related interface and recommendation-algorithm technologies. Critically, Article 12 introduces ‘deemed export’: any provision of controlled technology by a Chinese national to a foreign entity, regardless of geographical location, is treated as an export. Technology developed within China and transferred to an offshore entity (even by way of corporate redomiciliation) and onwards to a foreign acquirer thus constitutes a ‘technology export’ requiring prior licensing.
The decision is best read as something more than a routine application of administrative regulation: it is a political signal of China’s growing assertiveness in protecting frontier technologies and the underlying know-how on which its strategic industries are built. Similar patterns have emerged in recent years. Reliance Industries, India’s largest private-sector conglomerate, had been negotiating with Xiamen Hithium, one of China’s leading energy-storage battery manufacturers, to license cell technology for a planned Indian production line; but the negotiations reportedly collapsed after China tightened export controls on lithium-battery components and overseas technology transfers. In a parallel development, China’s Ministry of Commerce reportedly asked domestic electric-vehicle manufacturers, in a closed-door meeting, to confine their European operations to final assembly and to keep most advanced clean-technology know-how within China.
Obviously, the substantive object of screening is no longer principally cross-border capital flows but cross-border technical control — over algorithms, models, intellectual property, computing capacity, training data, and the human capital that produces them. Whether the formal instrument is a foreign-investment veto, an export-control licensing requirement, or informal administrative guidance, the underlying objective is the same: to retain frontier technological capabilities within the home jurisdiction.
Tightening Investment Screening in the Tech Sector: A Global Trend
China’s approach mirrors a global trend of tightening investment screening in the tech sector. Following President Biden’s Executive Order of 9 August 2023, the US Treasury’s final rules prohibit or require notification of certain US investments in ‘covered foreign persons’ involved in semiconductors, quantum information technologies and AI. Japan revised the Foreign Exchange and Foreign Trade Act to require prior notification to the Minister of Finance and the competent industry minister for foreign investment in ‘core business sectors’ including semiconductor manufacturing equipment, advanced electronic components and storage batteries.
The European Union is moving in the same direction: in 2022, Germany blocked the proposed Chinese acquisition of Elmos’s semiconductor wafer fabrication plant in Dortmund on national-security grounds, despite the deal being structured through a Sweden-incorporated intermediary; and the revised EU FDI Screening Regulation now requires every Member State to screen foreign investments in ‘hyper-critical’ sectors including AI, quantum and semiconductors, and extends that screening to intra-EU acquisitions by EU subsidiaries ultimately controlled by non-EU investors, legislatively closing the gap left by the Court of Justice’s Xella judgment. UNCTAD’s World Investment Report 2025 confirms the broader picture: FDI screening mechanisms are increasingly being deployed to address national-security concerns, and a growing number of cross-border tech transactions have reportedly been withdrawn or abandoned in anticipation of an adverse review.
These developments crystallise a broader pattern that has been termed ‘Technopolitik’: as a country’s technological innovation capability serves as the endogenous driving force behind overall changes in global politics and the global economy, control over frontier technologies has become a central battleground of geopolitical competition. The principal axis of inter-State competition is shifting from cross-border capital and goods to technical control, with States increasingly reaching for the legal instruments that allow them to deny others access to core technologies while preserving access for themselves; the legal architectures of trade and investment are, in turn, being repurposed to serve that competition.
One pathway through which States seek to close a technological gap is the acquisition of foreign technologies that can be assimilated, adapted, and further developed domestically. Outbound investment in foreign firms that hold the relevant technology has, as the OECD has increasingly recognised, become a distinct vector of international technology transfer in its own right. This dynamic accounts for the global proliferation of investment screening mechanisms, particularly in sectors built on advanced technologies, as States seek to shield their indigenous core technologies from foreign acquirers.
As Chaisse and Dimitropoulos have observed, contemporary investment screening laws link national security to the protection of critical technologies — with a view to maintaining a technological edge in today's competitive economy — and to the safeguarding of critical infrastructure. It is against this backdrop that a growing body of scholarship has turned to investment screening, increasingly identifying it as one of the most consequential developments in domestic and international economic law in recent years.
How the Rise of Investment Screening Challenges International Economic Law
The Meta–Manus veto is, prima facie, a routine application of a domestic security-review statute; on closer examination, however, it is a paradigmatic illustration of the unilateralism and securitisation of foreign investment regulation. In announcing the prohibition, the NDRC did not articulate a coherent legal or procedural framework explaining how the relevant national-security concerns had been identified and assessed. That omission lends weight to a broader international concern about screening regimes of this kind: where industrial policy or political judgments are reframed in the language of economic and national security, confidence in the impartiality of national security review is liable to erode.
Stepping back from China and viewing the global trajectory, the unprecedented proliferation of investment screening mechanisms amounts to a recalibration of international investment law itself. Specifically, it reflects a discernible shift toward unilateralism and the ‘domestication’ of international economic law. Two features characterise this shift. First, cross-border trade and investment are increasingly governed by domestic rather than international rules. Second, States increasingly prefer unilateral action to multilateral cooperation when addressing problems of investment governance.
As geopolitical rivalry over frontier technologies intensifies, screening interventions in the tech sector will only multiply and diverge across jurisdictions, deepening the fragmentation of international investment law and chilling the cross-border investment climate. The pressing question is how international investment law and regional cooperation can foster greater harmonisation among screening mechanisms — particularly on the principles of transparency, proportionality and non-discrimination — and how to build avenues of recourse for affected investors. That inquiry sets the agenda for the next phase of work in this field.
[1] The three structures most commonly used to place a Chinese business under a foreign corporate shell: Variable Interest Entity (VIE) structures, in which an offshore parent controls a China-based operating company through contracts rather than equity; 'Red-chip' listings, in which a company with mainland Chinese operations incorporates its parent offshore (typically in the Cayman Islands) and lists it abroad; and acquisitions through an overseas Special Purpose Vehicle (SPV), a foreign shell entity created solely to hold the target so that the sale is concluded between non-Chinese parties.
