China blocks US capital in AI firms without approval, escalating tech rivalry after Meta deal

China to Curb US Investment in Tech Companies After Meta Deal

Chinese regulators plan to restrict technology firms including some of the country's highest-profile AI pioneers from accepting US capital without government approval, part of Beijing's broader response to Meta Platforms Inc.'s controversial acquisition of startup Manus. Agencies including the National Development and Reform Commission have told several private firms in recent weeks they should reject capital of US origin in funding rounds unless explicitly approved, according to people familiar with the matter. Moonshot AI, which is considering an initial public offering, was among those that got the guidance from the powerful state planner, according to a person familiar with the matter. Fellow Chinese startup StepFun received similar instructions, another person said, asking to remain anonymous to discuss a non-public matter. Regulators have also decided on similar restrictions for ByteDance Ltd., the owner of TikTok and the most valuable startup in the country, the people said. They don't want the Beijing-based company, which also operates one of China's most popular AI chatbots, to approve secondary share sales to US investors without government approval, one of the people said. The over-arching intent of the latest restrictions is to prevent US investors from taking stakes in sensitive sectors where national security is a priority, the people said. The previously unreported move stems from the $2 billion Manus buyout earlier this year, which triggered a Beijing probe into illegal foreign investment and tech exports shortly after its December announcement. The deal was initially hailed as a template for startups with global aspirations, but critics have since lamented the loss of valuable AI technology to a geopolitical rival. The commission -- a powerful state planning agency with broad policy-making powers -- is now heading a multi-agency probe that includes the Ministry of Commerce into the deal and its repercussions, the people said. Representatives for the NDRC and Ministry of Commerce didn't respond to faxed requests for comment. Moonshot and Stepfun spokespeople didn't respond to requests to comment. ByteDance representatives also didn't respond to messages seeking comment. The new restrictions risk further isolating China's recovering tech sector from the venture backing that has underpinned it for two decades, much of which was sourced from American pensions and endowments. It follows Beijing's decision to restrict "red chips" -- a type of Chinese company incorporated overseas -- from seeking initial public offerings in Hong Kong, threatening to upend a decades-old playbook that helped Chinese companies tap foreign capital by floating overseas. The twin moves suggest that regulators are worried about a leakage of homegrown technology abroad as Chinese-founded startups and companies explore international opportunities. In the wake of the Manus acquisition, many academics decried the loss of a valuable asset to the US. Many worried that the deal would encourage other startups to follow suit. To be sure, Washington has restricted investments into certain Chinese technology sectors, for fear of helping advance its military or economic might. In 2025, US rules designed to curb investment in Chinese-owned semiconductor, quantum and AI companies took effect. But Beijing had for years encouraged its most ambitious firms to seek business and partnerships abroad, including from US financiers, recognizing the need to foster world-class players in areas from electric vehicles to electronics. And global capital allocators have begun re-evaluating China -- a shift accelerated by the breakout successes of AI phenom DeepSeek in 2025. At the heart of the post-Manus debate was the way the startup restructured to make a sale to a foreign company possible before any regulatory review in Beijing. Manus was a Singaporean-incorporated firm, but its founders hailed from China. Launched in March 2025, Manus is a general AI agent capable of automating complex tasks, ranging from S&P 500 analysis to drafting sales pitches. A month later, its parent Butterfly Effect raised $75 million in a round led by Silicon Valley's Benchmark, valuing it at $500 million. The investment triggered a probe by the US Treasury over potential violations of restrictions on investments in sensitive technologies. In July, Manus relocated its China-based staff to Singapore, cutting dozens of roles in the process. Meta announced its acquisition in December after Manus surpassed $100 million in annualized revenue. It remains unclear what other action Beijing will take following its investigation. Manus co-founders Xiao Hong and Ji Yichao had been barred from leaving China, the Financial Times reported in March. Large language model makers remain some of the most coveted investment targets. Beijing-based Moonshot is seeking to raise as much as $1 billion in an expanded funding round that would value the startup at about $18 billion, Bloomberg News reported last month. Its Shanghai rival StepFun, which is considering a $500 million float in Hong Kong, is in the process of unwinding its overseas entities and onshoring capital to meet regulatory requirements, the people said. The restructuring, which could take months and carry significant tax implications, comes as regulators ramp up scrutiny over so-called red-chip firms -- entities registered offshore that house Chinese businesses and assets. ByteDance is the highest-profile private company in China, in part because of the success of video app TikTok. The parent company had to sell a majority stake in TikTok's US operations after a years-long battle with the US government. ByteDance is much more established than its smaller AI competitors and it's not clear the company would seek to raise additional money from outside investors. The company has long been considered a prime candidate for an eventual IPO.

China plans to block US investment in its top AI firms without government approval

Two parallel moves in 24 hours mark a significant escalation of the US-China AI war from chips and exports into capital and models. China plans to restrict its leading technology companies, including top AI startups, from accepting US capital without first obtaining government approval, Bloomberg News reported on Friday, citing people familiar with the matter. No Chinese government official confirmed the report. The move, if implemented, would represent a significant structural shift in how Chinese AI companies access foreign capital, effectively placing US venture capital into the same approval framework that already governs certain technology exports, data flows, and foreign acquisitions of Chinese assets. The timing is not accidental. On Wednesday, the Trump administration announced it would crack down on foreign technology companies, singling out China, that are "exploiting" US artificial intelligence models, a practice known as model distillation. White House Director of Science and Technology Policy Michael Kratsios framed the move as the first major US government response to complaints from Silicon Valley AI companies that Chinese developers have been using open-source or commercially accessible US AI models as training data to build rival-generation systems, thereby closing the capability gap without having to develop from scratch. Bloomberg characterised the US move as targeting Chinese firms "improperly" using American AI models. Together, the two announcements describe a 24-hour escalation in which both governments moved simultaneously to sever the remaining channels of AI technology and capital transfer. The US is trying to prevent its models from being used to train Chinese competitors; China is trying to prevent American money, which carries intangible benefits including managerial expertise, talent networks, and strategic access, from flowing into its AI national champions without state oversight. Each move is a response to the other's prior actions, and each creates the conditions for the next retaliation. The backdrop to China's reported capital controls is the existing US outbound investment rule that came into effect on 2 January 2025, which prohibits US persons from making equity investments in Chinese companies engaged in advanced semiconductors, quantum computing, or certain AI systems without Treasury Department approval or notification. China's reported plan is, in structural terms, the inbound mirror of that US rule: requiring government approval before Chinese AI companies accept capital from the country that has also been restricting chip exports to China since 2022. The model distillation question is the more technically novel of the two moves. Chinese developers have used DeepSeek-R1, Meta's open-source Llama models, and other accessible US models as training signal for their own systems, a practice that is currently legal under open-source licences but which US AI companies argue gives Chinese labs an unfair structural advantage. DeepSeek V4-Pro, released earlier today and covered separately by TNW, was trained with Huawei chips and claimed near-frontier performance; whether it also incorporated distillation from US models is a question the administration's new framework would directly address. The enforcement mechanism for the distillation crackdown has not been specified publicly; the question of how a government would prevent training data from crossing borders is technically and legally unsettled. The commercial implications for Chinese AI startups are significant but uncertain. Companies like Moonshot AI, Zhipu AI, MiniMax, and the entity formerly known as Manus AI have been navigating a capital environment that was already constrained by US regulatory signals. If the approval requirement is implemented, it would add a formal layer of Chinese government oversight to any US VC investment in those companies, potentially chilling investment further or driving more of China's AI capital formation through domestic channels. The Chinese government has been increasing state investment in AI infrastructure and has made no secret of its preference for domestic AI champions over internationally capitalised ones. A formal approval regime for US investment would be consistent with that preference. What neither measure resolves is the underlying dynamic driving it: China's AI capabilities are improving faster than the export controls are degrading them. DeepSeek V4, released today, claims near-frontier performance on coding and mathematics using Huawei chips, not Nvidia ones. The US controls on chip exports and investment were premised on a widening capability gap; that gap is narrowing. The question both governments are now answering is not "how do we maintain the current technological order" but "how do we shape the terms of a competition that is already fully joined."

China to curb US investment in tech companies: Report - The Economic Times

Chinese regulators, including the National Development and ⁠Reform Commission, have recently instructed several private technology firms ⁠to reject U.S. investment in funding rounds unless explicitly approved,, the report said.China plans to restrict top technology firms, including leading AI startups, from accepting U.S. capital without government approval, Bloomberg ⁠News reported ⁠on Friday, citing people familiar with the matter. Reuters could not immediately verify the report. Chinese regulators, including the National Development and ⁠Reform Commission, have recently instructed several private technology firms ⁠to reject U.S. investment in funding rounds unless explicitly approved,, the report said. AI startups Moonshot AI and StepFun were among the companies that received the guidance, the report said, adding that TikTok owner ⁠ByteDance has also been told it should not allow secondary share sales to U.S. investors without clearance.