Can China reverse a billion-dollar tech deal? - Asia Specific podcast, BBC World Service

Recently, something extraordinary happened. in the tech world, something we haven't seen before. The Chinese government demanding that a two billion US dollar deal. for an American company to buy a Chinese AI service be reversed. Now, that American company is Meta. Mark Zuckerberg's Meta, which owns Facebook, Instagram and WhatsApp, and the Chinese AI firm Manus. It's actually a Singaporean based firm, which created quite a lot of buzz. because of its AI agent tools.

So why did Beijing block it, and what does it mean. for the battle to dominate artificial intelligence? As always, I'm Mariko in Singapore and this is Asia Specific. from the BBC World Service, the podcast that unpacks Asia Pacific stories. with those who know them inside out. And today I have Rui Ma, founder of the Tech Buzz China Newsletter, which is a real go to source for people in the US China tech space. I also have Wendy Chang,

a senior analyst at the Mercator Institute for China Studies, a German based research institute. Welcome both to Asia Specific. Thanks for having me. Happy to be here. So, Rui, the US and China compete in practically everything, especially when it comes to tech. But this company Manus seems to have been a rare instance of cooperation. where American and Chinese companies agree to a deal. So can you just talk us through why Meta wanted to buy Manus.

in the first place? What made it so special? Basically, it was one of the breakouts. in terms of this whole agentic AI wave that we're seeing right now. And it was one of the earlier ones. Right now we have Open Claw and other different harnesses, but Manus was really kind of the first consumer grade ready. for prime time use applications,

and it was unique in that it came out of China. It came out sort of right after DeepSeek made waves. And that was also one of the reasons why it got a lot of people's attention, because people saw it as a, wow, this other innovation coming out. of Chinese AI that has thus far been always behind us. Specifically for Meta, there are many reasons, right? Meta also explains why it decided to acquire Manus,

but one of the main reasons that we can see is that Meta in. the past couple years has been sort of reshuffling its overall AI strategy. It has, you know, hired completely new staff, decided right to kind of re-institute a whole new strategy. And one of them includes really going all in on this application layer. And Manus is a very sophisticated team that is full of talent,

that has proven that it has the ability to deliver. a globally recognised application in AI. But this deal with Meta, it was a done deal, wasn't it? Because Manus moved to Singapore last year, its staff relocating to the city state. Then Meta agreed to buy it for $2 billion. But then Beijing came out and said that the deal violated its regulations, in particular the export of key critical technology.

And it's about national security. And in response, the Meta spokesperson has told the BBC. that the transaction complied fully with applicable law and. that they anticipate an appropriate resolution to the inquiry. But they also then went on to say that. the team at Manus is now deeply integrated. into Meta running, improving and growing the Manus service. So is it possible to undo this deal, and if so, how? Is it possible?

I think it's more maybe on the legal side and. it's up to the commerce on both sides what they decide to do. But I think more than anything, this deal is really symbolic, or rather, Beijing's move is really symbolic. It wants to make it very clear, especially to its own tech ecosystem, which is full of tech talent, AI talent, that a maneuver like this, without the approval. of the government is not going to be permitted from now on.

Especially when it comes to AI talent, which is very key to. the country's AI competition with the US. Rui, is it possible technically? Like how would they undo this deal if Meta says. that those staff are already fully integrated into Meta's ecosystem? Yeah. Again, I agree with Wendy. It'll have to be up to the regulators. to clearly define what they mean by unwinding. The Chinese government themselves constantly refer. to the fact that there are global precedents, including, you know,

US side unwinding Chinese acquisitions of US tech companies, the most famous one being Grindr or the gay dating app. that where the acquisition was unwound, I think over a year after it was closed. With talent, I think it's easier with IP and, you know, I guess software that's already been injected, let's call it into the Meta ecosystem or into the source code.

There are still ways to unwind it, but I guess. the question I think here is, is that really what's most important? And I would argue it's really not because as you know, as I believe, as many technology analysts also believe, the sophistication of the technology that was acquired is really not. the most important aspect of this deal. This really is a deterrent to future deals.

like this being completed without the Chinese government having a say. I'm just wondering about the Singapore factor. because Manus moved to Singapore last year. It's incorporated here and Singapore has somewhat become a go to place. for Chinese tech companies trying to navigate. these geopolitical tensions between the US and China. But how, why does Beijing still have a say legally in this deal.

if the company was already incorporated in Singapore, Wendy? I think the idea is that part of what Beijing is going after right now. is retroactively looking at Manus's move to Singapore last year, and whether that move had met all the rules, especially when it comes to export control of critical technology. Either that or maybe the export of key IP. There's also an argument that AI technology may have been trained.

on the data of Chinese nationals, and China has very strict rules about cross-border data transfer. And so that may become another thing that's worth scrutinising. And Chinese authorities may go from those details to argue that. the move across borders to Singapore was illegal in the first place. And of course, it still has jurisdiction over. the Chinese nationals who are its employees. So that's going to be another big leverage that they have.

So how did Singapore become this go to place, right? Because we have ByteDance as well, the owner of TikTok being headquartered here. What's so attractive about Singapore and what. does this block of Meta Manus deal, how could this impact Singapore's position in your view? You know, I think Singapore will remain attractive. as a global outpost for Chinese companies looking to go overseas. And Singapore's attractiveness is because it is considered.

sort of a relatively neutral, you know, geopolitically de-risked region. where you you still are pretty close to China in terms of the distance. And you can move key talent over relatively easily. There is good policy to support that, but also culturally. That being said, the Chinese government largely is sort of, I think. what they're trying to assert here is not that you can't operate in Singapore.

or maybe even put your global headquarters there, as ByteDance has. It's that, again, you do it with, you know, sort of our consent and permission. But that also, I think what really upset and by the way, not just the government, you can see this very visibly in public discourse. is that for the Manus team, they made this decision, while rational. at the time, kind of hurt the feelings of, I think the government and the people where they removed,

you know, their Chinese operations. So when they. you know, shut down basically their domestic Chinese offices. and relocated or laid off their Chinese workers, that was kind of taken in a very different way from ByteDance. or Shein or these many, many, many other companies having. Singaporean regional or global headquarters. You were both talking about the message,

I guess, that Beijing is trying to send by blocking this deal. And reportedly, the CEO and the chief scientist of Manus. were barred from leaving China. So what's been the reaction from the tech community. to this news that Beijing wants this deal undone? I want both of your opinion, but let's start with you, Wendy. I think the message is loud and clear. Going forward, if you're a tech company, especially if you're AI and extra double,

especially if you're an AI company that's received a lot of attention, so to raise points earlier, exactly, because it was so much reported on domestically inside China. as the next rising star right after DeepSeek's. huge success that China, in a way, had to react to the fact that they up. and moved across to Singapore. So that's one part of it. But I think it's really about the critical technology.

It's about the AI competition because. as we know, there's a lot of cross border talent in AI. There are a lot of Chinese born, AI educated people who then go. and work in Silicon Valley or vice versa, moving back and forth. And China, I think with this move, really wants to make a point. that, okay, if you are part of the Chinese team, if you will, if you're homegrown talent, then stay here.

So I think this really sends a message to, specifically to, I think, AI talent or to other critical technology, perhaps that while seeking funding overseas. in Singapore is usually permitted. But if you're in critical tech, this is going to be something that. you're not going to evade regulation just by very easily moving to Singapore. So I do think that for those kinds of companies, the approval process will become more difficult going forward.

Yeah, I think for the tech community, it depends on which tech community you're talking about. Because I live in Silicon Valley, there's obviously a very big community here. And I think the overwhelming response for anyone who's paying attention, and I think some people do because it's Meta involved, after all, is that, oh, wow, this is going to have a huge chilling effect on, you know, Chinese startups getting bought by US companies.

or getting invested in by US investors. I would say that fear is a little overblown. You know, I'm very active in sort of this cross-border window right. between us and China, and that just the Manus deal was very, very rare. Both the investment from benchmark and the acquisition by Meta. And I personally was surprised. I was, I happened to be sitting next to someone, an AI application.

So not a model company, but an AI application CEO who. had been funded by tier one investors in China when this news broke out. And I just asked them, I didn't know them very well what they thought, and they thought it was very justified on the part of the government. So I was a little surprised by that. I was like, oh, doesn't that also kind of hurt your globalisation chances? But again, from the perspective of many entrepreneurs, it's not that many startups that are servicing a global market.

without servicing Chinese market at all. Most people do have services and revenue. and maybe even the majority of their revenues coming from China. So they just don't see themselves as ever having that scenario happen. You know, where they would even have a chance of not alerting the government and having an acquisition close. So the, I guess the target population.

towards which this would greatly upset them is actually very small. because the types of deals that you know, of this type, and then the types of entrepreneurs pursuing this specific business strategy is just not a majority. That being said, I think the message got home loud. and clear to everyone I talked to, right? It was very much like you got to pick. Not necessarily that you got to pick China. or global because you definitely should be picking global,

but that once you do just start a company, you should have an idea of where, which jurisdiction you're going to be in. and which regulatory regime, right? That you should really be careful not to run afoul of. Do you think this could be the last time that, you know, a big American company like Meta, though, bids. for a Chinese origin company,

given the possible hurdles or you don't think that would have an impact? Yeah, I think this is the last time. I think exactly like what you said. There's enough talent on both sides. that it just won't be worth the trouble to do something like this anymore. I think going forward, yeah, I think if you want to be acquired and you're on this side of the Pacific. Probably people would consider starting in Singapore to begin with. Right? So you wouldn't get into this situation.

in the first place that your data maybe Chinese, your incorporation is Chinese. And it's complicated, right? So I think when it comes to critical technology, the AI. the Chinese US competition is becoming, it's creating. increasingly separate ecosystems. So on the Chinese side, they have their own models. The models are increasingly using their own chips. So it's moving towards separate systems.

And I think that really is not conducive to cross acquisition of technology. And Beijing clearly doesn't want it. And I think because it doesn't want that kind of competition, Silicon Valley money coming over to take over homegrown talent. Well, both of you have been talking about how this competition. between the US and China has been heating up. Initially, the US was leading. Chinese tech has been making news headlines quite a bit. But as a big picture question,

who's leading the race at the moment, in your view? Because Manus is running off AI technology from Anthropic, which of course is an American company. Let's start with you, Wendy. China is forging its own way to try to get ahead because as we know, I quite a disadvantage when it comes to their computing power, which limits their ability to train frontier models. That's why it's at least partly. why all the frontier models come out of Silicon Valley, still.

I think what China is doing is trying to focus on applications, trying to move fast with policy, with commercial application, to try and throw a lot of different things at the wall, right? And also, Beijing is using policy like the AI plus policy. to try to push AI development across different fields. to aid the so-called real economy. So to develop things in the medical field, for example, or in finance,

and then lastly, to combine AI with physical things. So for example, electric vehicles and robots. So basically leveraging their strengths in manufacturing. and having a large market to develop AI applications. and hope some of them get them ahead, right? Rather than competing head on with AI, sort of the cutting edge. The really most important word for China right now is. self-reliance, especially on such a critical technology.

And obviously, that shows up in the form of semiconductors. And I think if you read the 15th five year plan, there's just so much about not, it's not focused on the AI frontier models. or getting to artificial general intelligence. or artificial superintelligence, whatever it is, it's really not about that. It's just about self-reliance across the entire stack. And the most weak part of the stack are the chips, right?

And we'll see. China's been making a lot of progress in that. You know, I just came back from two weeks taking investors around China, talking mostly to robotics companies, a few AI companies and. the overall atmosphere or overall narrative is basically. that everyone's waiting for the Huawei chips to come out.

They are the leader in both in terms of functionality, but also in terms of potential supply. And once they figure out how to produce at scale, which, which is still a small question mark, right? At this point, I think, you know, Deepseek. has said that, has basically made the announcement that they will be doing. their inference on Huawei chips in the second half of the year.

And everyone's expecting this scale up. But assuming that scale up happens, it could really change things. But that's what China's focused on, right? It's really like a broad infrastructure play, a broad, whole stack play like Wendy said. President Trump is scheduled to go to China very soon. Do you think this decision by Beijing to block this deal, was it to maybe, possibly set an agenda ahead of that meeting? And could, you know, maybe Mark Zuckerberg ask Trump to help with this deal?

I personally can't really see that happening. It's not that important of a deal. I don't see that rising to the national level agenda. If there is discussion, it would be more broadly. around how to deal with export, you know, or like government oversight of deals of this nature. And also, just to add the US government, like I don't, I didn't see, you know,

that much overt pushback from the US government. I wasn't totally focused on that. But I can tell you that, you know, in Silicon Valley at the time, just with technologists and maybe some, you know, politically active folks, they were very much against the deal. They were like, you have $2 billion to acquire a company. Why are you acquiring a Chinese company? What do we know about the people that you're bringing in and, you know,

empowering them to then plug in into one of the most powerful user bases, one of the largest user bases in the world, right? Three billion plus users. Have you thought about this? Right? Is this safe? From the American perspective. Yeah, I agree fully with that. I think if they talk about anything tech, it might be the TikTok deal, right? Which we haven't heard about in a while. And I think there was actually a move to look into the investment round.

into Manus from benchmark the Series B when that was announced. So definitely agree with your point, Rui, there that from both sides. they don't want, they don't really want this cross-pollination. We'll pause this conversation here. I'm sure this is not the first time. and the last time that we'll be talking about this as the competition heats up. Rui and Wendy, thank you so much for joining me. Thank you so much for having me. Thanks for having me. You've been watching Asia Specific from the BBC World Service. with me, Mariko Oi in Singapore.

If you have any questions or thoughts on what we covered in this episode. or any other stories from the region, please leave us a comment below. You can also get in touch with us on email asiaspecific@bbc.co.uk. and you know the drill. Click like and subscribe so you never miss an episode. See you next time.