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China's top economic planning authority has blocked Meta's roughly $2 billion purchase of Manus, an AI tool developed in China and registered in Singapore.
Analysts say this marks a turning point in Beijing's tolerance of what is called "Singapore-washing."
The National Development and Reform Commission said on Monday that it blocked the deal for national security reasons, citing concerns about sensitive AI technology being transferred to a major U.S. tech company.
The Financial Times also reported that two Manus co-founders were not allowed to leave China during the review.
"Singapore-washing" refers to Chinese tech firms moving overseas, often to Singapore, to get foreign funding, face fewer regulations, or attract international customers while distancing themselves from their Chinese roots.
Wendy Chang, an analyst at the Mercator Institute for China Studies (MERICS), said Beijing previously allowed this practice.
"The Manus case marks a major turning point," she told Agence France-Presse (AFP). She added that this move sends a message to China's tech leaders that trying to avoid national rules will not be accepted.
Manus moved its operations to Singapore last year. Chang pointed out that it is still unclear if the company has finished an official legal re-registration, which could have given Beijing more control.
Other well-known Chinese-founded companies in Singapore include the e-commerce giant Shein and TikTok, which is owned by ByteDance and still based in China.
Meta said on Monday that the deal "complied fully with applicable law" and expects "an appropriate resolution." The Wall Street Journal later reported, citing sources, that Meta was preparing to withdraw from the acquisition following Beijing's decision.
Legal experts warned that the situation might not be easy to fix. Nicholas Cook, a partner at Nixon Peabody CWL, said it "may be challenging or even impossible to ultimately reverse this transaction."
Angela Zhang, a law professor at the University of Southern California, told AFP that China's main goal is to "set a precedent" and to remind entrepreneurs that they cannot transfer important technical knowledge abroad without government approval.
Analysts called the acquisition an "acquihire," meaning it was as much about hiring the startup's engineers as it was about acquiring its technology.
Chang said China's AI engineers are a key national asset, and Beijing's actions show it is worried about losing talent, data, and money.
Some analysts said this case could be used as a bargaining chip in upcoming talks between Chinese President Xi Jinping and U.S. President Donald Trump.
The decision is also viewed as a warning to other Chinese AI companies. Lizzi Lee, from the Asia Society Policy Institute, said the case shows that Beijing does not take corporate identity at face value.
"If your tech, founders, or talent base are Chinese, then the company is still strategically Chinese, regardless of where it's incorporated," she told AFP.
Cook warned that Chinese AI founders "would be well advised to think twice before following in Manus' footsteps."
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