Act 2 of Manus saga and what it tells about Beijing’s attitude towards private businesses

China Translated - Briefing #76

Early this year, Beijing’s post-deal blocking of Meta’s acquisition of the AI company Manus sent shockwaves through the venture capital and entrepreneurial communities around the world. For a while, every coffee chat and dinner conversation turned to Manus. “Look at what Beijing just did to Manus?!” “Entrepreneurism is doomed in China!” “Nobody would seriously consider starting a company in China after this!”

Since the beginning, there have been mainly two camps regarding the Manus story.

One camp is the “Beijing is nuts” camp. For this camp, the communist Beijing hates private businesses and will go out of its way to destroy successes. Most foreign observers, whether voluntarily or involuntarily, fall into this camp.

From the very beginning, I was one of the lone voices in the second camp. And in our small camp, Beijing is actually being quite reasonable here. Back in April, I pointed out that it’s Manus’ deliberate “Singapore-washing” to get itself rid of its Chinese roots and to bypass China’s normal regulations regarding foreign investment, combined with their over-dizziness following Meta’s acquisition that forced Beijing to react and to make an example out of Manus.

Had Beijing failed to act, it would be the industry standard today to found a company in China, capitalize on China’s many resources, and, once the business gains traction, quickly de-sinicize it and sell it to the highest bidder while pocketing the proceeds offshore. That will be a gigantic middle finger to Beijing’s sovereignty and China’s overall economic interests.

Now, which camp is right?

If the “Beijing is nuts” camp is right, not only will Manus’ founders be barred from leaving the country, but they will also be “disappeared” and given the “Jack Ma treatment.” And after ordering Meta and Manus to unwind the deal, why should Beijing stop there? Beijing would go on to seek to destroy the business itself just to make an example out of it. This will fit the stereotypical Stalinist reading of the Chinese government, a story that folks like Wei Lingling of The Wall Street Journal would salivate over.

Only that none of the above happens. Yes, the Manus deal has been unwound, and the acquisition money has been returned. But that’s where the “penalty” stops. What happens afterward is far from what the “Beijing is nuts” camp has predicted.

On October 8, Manus’ parent company, Butterfly Effect, announced that it had raised more than $500 million, with Boyu Capital and IDG Capital leading the round and existing investors Tencent, HSG, and ZhenFund participating. Bloomberg had reported a target valuation of $4 billion, roughly twice Meta’s acquisition price. Manus is also exploring a potential Hong Kong IPO.

That is a rather curious outcome for a business supposedly marked for destruction. But to me, this is entirely consistent with what I argued in April: Beijing wants its rules on foreign acquisitions to be respected, while leaving the company room to raise capital, grow, and eventually reward its shareholders.

Quite reasonable, isn’t it?

But clearly, international media has not paid as much attention to this new turn of events as when Beijing first blocked the deal. “Manus is prospering under Beijing” does not make a great headline, nor does it make a great dinner topic.

Talking about Jack Ma, by the way, I also have a very different take on it compared with the global consensus, and I wrote about it in What really brought about Jack Ma’s “downfall” last year. My core claim was that Jack Ma, the billionaire Alibaba founder who once angered Beijing in that infamous Bund Summit speech, who was not imprisoned, who was allowed to roam freely in the world, who did not have any assets confiscated, who in the end came to good terms with Beijing, created this problem for himself all because he saw himself not just as a private businessman but as someone of sizable political weight who had the license to challenge Beijing’s authority and to bend the rules in his favor.

Beijing was also being reasonable there. However, the perceived heavy-handedness in Beijing's handling of the episode showed that it did not pay enough attention to international perceptions and the ramifications at the time.

The Manus episode seems much smoother, and Beijing seems to be learning. But what Beijing still fails to learn is how to make its reasonableness clearer to more people; otherwise, you will not need to read about it in this humble newsletter.