Quick overview

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Chinese regulators intend to prohibit technology companies, including some of the nation’s best-known AI pioneers, from accepting US capital without government approval.

The contentious purchase of startup Manus. According to people familiar with the situation, agencies such as the National Development and Reform Commission have instructed several private companies in recent weeks to reject US-origin capital in funding rounds unless specifically authorized.

Moonshot AI, which is considering going public, was among the companies that received advice from the influential state planner. Another person claimed that StepFun, a fellow Chinese startup, was given similar instructions and asked to remain anonymous to discuss a private matter.

Regulators have also decided to impose comparable limitations on ByteDance Ltd. The most valuable startup in the nation, according to the people, is the owner of TikTok.

The main goal of the most recent regulations is to keep US investors from investing in delicate industries where national security is a top concern. The $2 billion Manus buyout earlier this year, which prompted a Beijing investigation into illicit foreign investment and tech exports soon after its December announcement, is the source of the previously unreported action.

Critics have since bemoaned the loss of important AI technology to a geopolitical rival, despite the deal’s initial praise as a model for startups with international goals. According to the people, the commission, a potent state planning agency with extensive policy-making authority, is currently leading a multi-agency investigation into the deal and its consequences that involves the Ministry of Commerce.

The new regulations run the risk of further cutting off China’s rebounding tech industry from the venture capital funding that has supported it for the past 20 years, a portion of which came from American endowments and pensions. Beijing’s decision to prohibit “red chips,” or Chinese companies incorporated abroad, from pursuing initial public offerings in Hong Kong threatens to disrupt a decades-old strategy that allowed Chinese businesses to access foreign capital by floating abroad.