TAIPEI ¨C Manus, an artificial intelligence startup, began with an idea among three engineers in Wuhan, China, united by an obsession with AI and a shared ambition to build a global venture. From the outset, they looked beyond China.

Their big break came in March last year.

Manus had drawn the attention of Silicon Valley investors with an AI agent capable of carrying out tasks on its own. By year¡¯s end, Meta had agreed to acquire Manus.

It looked like a clean breakout from China¡¯s crowded, tightly regulated market and a path to the world stage.

Then, on Monday, the Chinese government stepped in and demanded that the $2 billion deal be undone.

A decade ago, Silicon Valley investors raced to back Chinese startups. Today, few do.

Deals such as Meta¡¯s acquisition of Manus were already rare, as China¡¯s tech sector drifted from American capital. Beijing¡¯s intervention sharpens the split.

Investors and founders say the move reflects a fragmenting landscape. Chinese startups are raising money at home and building for domestic markets, while U.S. investors steer clear of the scrutiny that comes with backing them.

¡°Great founders and free markets used to decide who won, but increasingly, outside forces may have the final say,¡± said Linus Liang, an investor at Kyber Knight, a venture firm based in San Francisco.

Liang said his firm had already been cautious about cross-border investments because of the risks and complexity. But the Manus episode underscored that AI products and talent are now treated ¡°like strategic national assets,¡± he said.

It has further chilled an already weak market.

Deals involving Chinese companies and foreign investors have dropped sharply since 2021, according to PitchBook, which tracks private investment. In 2024, the number of deals was down 73% from the 2021 peak, while the total value of such transactions dropped to $7.8 billion from $54 billion.

Things were not always this way.

In the 2010s, American investment firms flocked to China, drawn by Silicon Valley-style growth and encouraged by policymakers in Washington.

Goldman Sachs and Fidelity were early investors in Alibaba, the e-commerce giant. Tiger Global and Coatue Management were early investors in Didi Chuxing Technology Co., known as the Uber of China. And General Atlantic and Sequoia Capital backed ByteDance, the parent company of TikTok.

By 2016, however, officials in the administration of then-U.S. President Barack Obama were raising concerns about unfair competition and government interference.

Tensions escalated under U.S. President Donald Trump, who moved to ban TikTok in 2020. Relations worsened a few years later when Congress investigated U.S. venture capital investments in Chinese companies with military ties. U.S. President Joe Biden issued an executive order barring U.S. investments in certain Chinese technologies, including...