A high-profile investment deal involving the AI start-up Manus and US venture capital firm Benchmark has ignited controversy on both sides of the Pacific, underscoring the growing geopolitical friction surrounding artificial intelligence innovation.
Manus, once hailed as China’s answer to Silicon Valley’s AI boom, abruptly exited its Beijing base, relocating to Singapore amid mounting pressure. The company’s Chinese offices have emptied, and its social media presence in China has been wiped, signaling a sharp retreat that has drawn sharp criticism in Beijing. Some Chinese media outlets have even labelled the Manus team “defectors” for abandoning the domestic market and shifting hiring overseas.
The move follows a $75 million financing round led by Benchmark, one of Silicon Valley’s top venture firms. The deal, which valued Manus’s parent company Butterfly Effect at nearly $500 million, has come under scrutiny by the US Treasury Department. Officials are reportedly investigating whether the investment contravenes new US regulations designed to restrict American investment in Chinese AI ventures. According to sources cited by the Financial Times, this deal represents a key test case in the fraught intersection of US-China competition and technology.
The Manus start-up was a rising star in China’s AI ecosystem earlier this year. The app, which operates on Anthropic’s Claude large language model from the US, rapidly gained traction, with demand for access codes soaring and state media praising its capabilities. However, reliance on US-based technology complicated operations in China, prompting the team to develop a second version based on models approved by Alibaba.
Despite early momentum, the US financing deal and political pressures prompted Manus to scale back its China ambitions. By mid-July, plans to launch a localized Chinese version were shelved, and most of the Beijing team was laid off, while recruitment efforts shifted to Manus’s new hub in Singapore.
Industry insiders tell the Financial Times that Manus’s experience reflects the broader challenges facing AI start-ups trying to straddle both Chinese and global markets. “It used to be possible to build for both China and the world,” one Beijing investor said. “Now, for AI, you have to choose.”
In Washington, Benchmark’s investment has provoked criticism from China hawks and security officials who argue the firm is pushing the boundaries of US decoupling policies. Some commentators on social media have accused Benchmark’s partners of acting as “assets to China,” highlighting the deepening mistrust between the two nations.
Benchmark has declined to comment publicly, and the Treasury Department has yet to announce the outcome of its review. However, sources warn that in a worst-case scenario, the firm could be forced to divest its stake in Butterfly Effect.
The Manus founders have been largely silent on the move, although co-founder Xiao Hong previously highlighted the commercial benefits of targeting overseas markets, citing higher willingness to pay and favorable exchange rates.
