    [Senate Hearing 119-168]
    [From the U.S. Government Publishing Office]

                                                          S. Hrg. 119-168

                    INNOVATION IN THE CROSSHAIRS: COUNTERING
                          CHINA'S INDUSTRIAL ESPIONAGE
    =======================================================================

                                    HEARING

                                   BEFORE THE

                          COMMITTEE ON SMALL BUSINESS
                              AND ENTREPRENEURSHIP

                                     OF THE

                              UNITED STATES SENATE

                        ONE HUNDRED NINETEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 JULY 23, 2025

                                   __________

          Printed for the use of the Committee on Small Business and
                                Entrepreneurship

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

            Available via the World Wide Web: http://www.govinfo.gov

                                    __________

                           U.S. GOVERNMENT PUBLISHING OFFICE
    61-657                      WASHINGTON : 2026
    =======================================================================

                COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
                        ONE HUNDRED NINETEENTH CONGRESS

                                  ----------

                            JONI ERNST, Iowa, Chair
                EDWARD J. MARKEY, Massachusetts, Ranking Member
    JAMES E. RISCH, Idaho                MARIA CANTWELL, Washington
    RAND PAUL, Kentucky                  JEANNE SHAHEEN, New Hampshire
    TIM SCOTT, South Carolina            CORY A. BOOKER, New Jersey
    TODD YOUNG, Indiana                  CHRISTOPHER A. COONS, Delaware
    JOSH HAWLEY, Missouri                MAZIE K. HIRONO, Hawaii
    TED BUDD, North Carolina             JACKY ROSEN, Nevada
    JOHN R. CURTIS, Utah                 JOHN W. HICKENLOOPER, Colorado
    JAMES C. JUSTICE, West Virginia      ADAM B. SCHIFF, California
    JON HUSTED, Ohio
                    Meredith West, Republican Staff Director
                     Sean Moore, Democratic Staff Director

                                C O N T E N T S

                                  ----------

                                 JULY 23, 2025

                               OPENING STATEMENTS

                                                                       Page
    Joni Ernst, U.S. Senator from Iowa, Chair........................     1
    Edward Markey, U.S. Senator from Massachusetts, Ranking Member...     3

                                   WITNESSES

    Ms. Emily de La Bruyere, Senior Fellow, Foundation for Defense of
      Democracies, Sewickley, PA.....................................     6
        Prepared statement...........................................     8
    Dr. Sujai Shivakumar, Senior Fellow, Center for Strategic and
      International Studies, Washington, DC..........................    16
        Prepared statement...........................................    19
    Dr. William Hannas, Lead Analyst and Research Professor,
      Georgetown University's Center for Security and Emerging
      Technology, Reston, VA.........................................    24
        Prepared statement...........................................    26

                  ADDITIONAL LETTERS/STATEMENTS FOR THE RECORD

    Ernst, Chair Joni
        Letter Dated May 16, 2025....................................    44
    Gallagher, Dr. Patrick
        Testimony....................................................    46
    Shivakumar, Sujai & Wessner, Charles
        Article Dated July 29, 2025..................................    51
    Singerman, Philip
        Article Dated July 10, 2025..................................    56
    U.S. Senate Committee on Small Business and Entrepreneurship
        Majority Report Dated May, 2025..............................    63

                            QUESTIONS FOR THE RECORD

    Ms. Emily de La Bruyere
        Responses to questions submitted by Chair Ernst and Senators
          Scott and Booker...........................................    78
    Dr. William Hannas
        Responses to questions submitted by Chair Ernst and Senators
          Scott, Cantwell, and Booker................................    83

                         INNOVATION IN THE CROSSHAIRS:
                         COUNTERING CHINA'S INDUSTRIAL
                                   ESPIONAGE

                                  ----------

                            WEDNESDAY, JULY 23, 2025

                          United States Senate,
                            Committee on Small Business
                                          and Entrepreneurship,
                                                        Washington, DC.
        The committee met, pursuant to notice, at 2:32 p.m., in
    Room 428A, Russell Senate Office Building, Hon. Joni Ernst,
    chairwoman of the committee, presiding.
        Present: Senators Ernst [presiding], Young, Hawley, Curtis,
    Justice, Husted, Markey, and Shaheen.

                   OPENING STATEMENT OF SENATOR ERNST

        Chair. I call the Committee on Small Business and
    Entrepreneurship to order. Before we get started with the
    business before us, I would like to take a moment to present a
    Senate 20-year Service Award to the committee's clerk, Kathryn
    Eden. Would you come forward, please, Kathryn.
        Kathryn came to the Senate in 2005 to serve as the
    scheduler for her home state Senator, and later served as the
    operations director for the Senate Committee on the Environment
    and Public Works. Kathryn has served as the Small Business
    Committee's chief clerk for 10 years under the leadership of
    numerous chairman and ranking members of the committee,
    including Senators Vitter, Cantwell, Shaheen, Rubio, Cardin,
    Paul, Markey, and Ernst.
        As a non-designated staffer of the committee, the chief
    clerk works for both the Republicans and the Democrats, which
    can be extremely challenging to navigate. At times, Kathryn
    makes being non-partisan look easy, and we all appreciate her
    expertise, strong judgment, attention to detail,
    responsiveness, and dedication to our members, staff, and
    constituents.
        On behalf of all of the members of the committee and our
    staffs, I want to thank Kathryn Eden for her service to the
    Senate. Congratulations, Kathryn.
        [Applause.]
        Clerk. Thank you.
        Chair. You're very welcome. So, Ranking Member Markey, do
    you have any comments?
        Senator Markey: I do have a few comments----
        Chair. Wonderful.
        Senator Markey [continuing]. To make while you make this
    presentation, and that is that the Democrats join the
    Republicans in thanking you, Kathryn, for 20 years of service.
    Your attention to detail, your tireless work ethic, your years
    of experience have shaped the very way this committee operates.
    Nothing we do here is possible without you and your team.
        You represent the very best public service; committed,
    capable, and always professional. And I know I speak for all of
    our members when I say that we are enormously grateful for your
    20 years of service. It's been outstanding. We're grateful for
    all you've done, and we're looking forward to the years ahead.
        Chair. So, thank you for pausing just for a moment as we've
    presented that award. 20-year pins are very hard to come by
    here. And so, Kathryn, thank you very much for your service.
        Today's hearing comes at a pivotal moment. America has
    consistently been at the forefront of technological innovation.
    Nonetheless, our adversaries, especially China, are working
    overtime to undermine us. Over the past 100 years, the United
    States of America has catalyzed the world's most consequential
    technology breakthroughs, from putting mankind on the moon, to
    unlocking a whole new digital frontier.
        Americans didn't just invent, we built. We turned those big
    dreams into real-world breakthroughs, securing a long and
    prosperous period of economic might and global leadership. But
    after a century of wins, we cannot become complacent. Over the
    past 20 years, those empowering Washington have looked the
    other way as China initiated a comprehensive industrial
    espionage strategy.
        They're not hiding it either. The Chinese Communist Party
    through its Made in China 2025 plan has made crystal clear its
    goal: to eliminate U.S. technological leadership in critical
    industries. We need to be more clear-eyed folks. China desires
    nothing more than to surpass the United States technologically
    and militarily.
        They want to impose their authoritarian ideology on the
    world and destroy the West. If we want any shot at preserving
    America's leadership and war fighting capabilities, we have to
    lock down our innovation pipeline. The truth is, America has
    left its door wide open, effectively inviting our adversaries
    to take advantage.
        As a result, sensitive industries have become vulnerable to
    exploitation, allowing countries like China to use well-known
    techniques, including talent recruitment programs, to steal our
    innovations. The CCP forces innovators across our vibrant
    startup economy to hand over trade secrets and intellectual
    property as a cost of doing business. They invest in American
    firms not to help, but to scheme, snoop, and steal.
        The United States Trade Representative and FBI estimate
    intellectual property theft by China costs our economy to $225
    to $600 billion per year. The Small Business Innovation
    Research, or SBIR, and Small Business Technology Transfer,
    STTR, those programs are no exception. In 2021, the Pentagon
    first sounded the alarm revealing the pervasive exploitation of
    the SBIR program by foreign bad actors and recommended a
    foreign ties due diligence review process for applicants.
        That's why through the SBIR and STTR Extension Act of 2022,
    I fought to establish a framework to identify the extent of
    foreign risk that each company coming through the doors and
    stop awarding awards to malicious actors. It was a strong
    start, but it isn't enough. Congress must take further action
    to secure the critical technologies being cultivated in these
    programs.
        In fact, my recent report on this subject showed that 64
    percent of applications flagged for foreign risk were still
    eligible to receive taxpayer dollars. That's unacceptable. I
    ask unanimous consent to enter this report into the record.
        Chair. We cannot afford to keep investing taxpayer dollars
    to develop and deploy our best homegrown technologies while
    failing to safeguard them against theft by our adversaries.
    This is why earlier this year, I introduced the INNOVATE Act.
    It would tighten our defenses, standardizing foreign ties, due
    diligence in SBIR across participating agencies, and giving
    agencies more muscle to claw back award dollars when our
    national security is threatened. It's just common sense.
        Let me be clear, this is only a first step. The disturbing
    reality is that China is already conducting economic warfare in
    our homeland by targeting our farmland and critical
    infrastructure. If we want to win the next century and beyond,
    we must protect our innovators, our intellectual property, and
    the technologies that will shape our future. I'm looking
    forward to hearing from our expert witnesses today on the scale
    of these threats and response measures for Congress to
    consider.
        I now recognize Ranking Member Markey for his opening
    statement.

                      STATEMENT OF SENATOR MARKEY

        Senator Markey. Thank you, Madam Chair, very much.
        From the beginning of the Industrial Revolution,
    Massachusetts has been at the epicenter of innovation for our
    country. Although I will say that I'm only here because Thomas
    Markey left to go to Dovan New Hampshire, where the Industrial
    Revolution was raging and ultimately moved to Lawrence,
    Massachusetts, where even larger plants were being built.
        And over the years, Massachusetts has been powered by the
    world's top universities, research institutions, strong public
    and private investments, and the best trained and brightest
    individuals that can be found in our country and around the
    world.
        The biggest threat to our innovation ecosystem, both in
    Massachusetts and across the entire country, is not coming from
    abroad. It is coming directly from 1600 Pennsylvania Avenue. It
    is coming directly from the White House.
        We all agree on the importance of research, security, and
    protecting our technology from China's espionage. There's no
    doubt that American technology needs to be protected from
    foreign adversaries, but right now it is President Trump
    himself who is killing American innovation and China is reaping
    the benefits of those decisions.
        Over the past seven months, President Trump has launched an
    all-out attack on higher education, threatening to withhold
    billions of dollars from universities that do not bend to the
    will of the administration, proposed dismantling the Department
    of Education beginning with laying off half of the department's
    workforce, gutted programs, grants, and staff for research and
    development at the U.S. Department of Agriculture, the
    Department of Energy, the Environmental Protection Agency.
        Slashed the National Institutes of Health budget by 40
    percent--that's research in Alzheimer's, and in Diabetes, and
    Parkinson's, Cancer research--and laying off thousands and
    thousands of researchers. And it has gutted the National
    Science Foundation by 57 percent, and NASA by 24 percent,
    repealed the Inflation Reduction Act for wind and solar, all
    electric vehicles battery storage technologies.
        China looks at us and they're saying, ``Why are you gifting
    us with the clean energy future for the world and the biotech
    future for the world? Those are the industries of the 21st
    century. Why? What did we do to deserve this gift from the
    Trump administration?''
        And it has also even canceled previously awarded research
    grants including one to Boston Children's Hospital that was
    searching for a vaccine to fight all coronavirus viruses, and
    he is restricting foreign students from enrolling in
    universities and creating such a hostile environment that
    future innovators and researchers are choosing to take their
    talents elsewhere, including just staying in China. President
    Trump is taking America's crown jewel and handing it to China
    on a silver platter.
        Federal government plays an outsized role in ensuring
    America has a competitive edge against the rest of the world,
    including China, whether that be through grants, contracts,
    funding for universities, friendly immigration, policies of
    robust agency funding. In 2022, 41 percent of basic research in
    the United States was federally funded, while only 35 percent
    was funded privately. Additionally, nearly a third of this
    federally-funded research was performed at universities.
        These attacks and cuts to innovation will not result in a
    greater, stronger, wealthier America. In fact, President
    Trump's proposed 22 percent cut in research and development
    funding could shrink the U.S. economy by almost 4 percent. The
    last time we saw such a setback was during the Great Recession.
        With China on our heels, instead of attacking universities,
    gutting science-based agencies, canceling research grants, and
    dissuading the best and the brightest from around the world
    from moving here, we should be doubling down to ensure that the
    United States can continue to lead the world in innovation.
        So, yes, I agree with my Republican colleagues that we must
    protect our innovation and research that is being produced here
    in America, but we also must make sure that we have something
    to protect. And I look forward to hearing from our witnesses
    today about the importance of investing in and protecting
    American innovation.
        And thank you, Chair Ernst, for holding this hearing.
        Chair. Yes. And thank you, Ranking Member Markey. And
    again, my apologies to our witnesses. They have called a second
    vote, and because we don't have other members present, I think
    we will go ahead and recess. We will come back--have you voted,
    Josh?
        Senator Hawley. I have voted.
        Chair. You have voted. Would you rather we go ahead and
    do----
        Senator Shaheen. Keep going.
        Chair. Okay. We'll go ahead if--Senator Hawley, we'll hand
    the gavel to you so we don't have to recess, and we'll have the
    witnesses proceed. So, if you want to go ahead and vote, Ed.
    I'll read our introductions here so that we can start with our
    witnesses. I apologize, we've got a lot of votes lately.
        Again, I want to extend a warm welcome to all of our
    witnesses, and I'll go ahead with introductions of those
    witnesses who are testifying here today. And I'm thankful that
    you did take time out of your schedules to join us.
        First, Ms. Emily de La Bruyere is the senior fellow at the
    Foundation for Defensive of Democracies, with a focus on China
    policy. She is a co-founder of Horizon Advisory, a consulting
    firm focused on the implications of China's competitive
    approach to geopolitics.
        Emily holds affiliations with think tanks focused on
    national security and competition with China, including as a
    senior visiting fellow at the Krach Institute for Tech
    Diplomacy at Purdue, and as a non-resident fellow at the
    National Bureau of Asian Research. Ms. de La Bruyere holds a
    bachelor's degree from Princeton University and a master's
    degree from Sciences Po, Paris.
        Next, Dr. William Hannas--did I say that right? Hannas? I
    want to make sure we get everyone's names right. Is lead
    analyst and research professor at Georgetown Center for
    Security and Emerging Technology.
        Previously, Dr. Hannas was a member of the Senior
    Intelligence Service at the Central Intelligence Agency. He
    started his career in the United States Navy as a cryptanalyst
    of foreign codes and ciphers and later served with a joint
    Special Operations Command at Fort Bragg. And thank you very
    much for your service to our country.
        Dr. Hannas holds a bachelor's degree in Chinese history
    from Temple University, a master's degree in Chinese from the
    University of Chicago, and a PhD in East Asian languages and
    linguistics from the University of Pennsylvania.
        And our minority witness today is Dr. Shivakumar. And Dr.
    Shivakumar directs the Renewing American Innovation Program at
    the Center for Strategic and International Studies, where he
    also serves as a senior fellow.
        Previously, he directed the Innovation Policy Forum at the
    National Academies of Sciences Engineering and Medicine. And
    Dr. Shivakumar holds a bachelor's degree from Carleton
    University, and a PhD in economics from George Mason
    University. And thank you very much for joining us today.
        So, we'll start with our testimonies. And in front of you,
    you will have a system of lights. Please press ``speak'' to
    speak, and that green means you're good. But once you hit that
    yellow button, you've got a minute left and we need to start
    wrapping up. And when we hit red, your time will be expired.
        So, Ms. de La Bruyere, we are going to start with you. You
    are recognized for five minutes.

    STATEMENT OF MS. EMILY DE LA BRUYERE, SENIOR FELLOW, FOUNDATION
          FOR DEFENSE OF DEMOCRACIES, SEWICKLEY, PENNSYLVANIA

        Ms. de La Bruyere. Thank you for the opportunity to testify
    today.
        China is winning the technological competition against the
    United States. China is not winning by out-innovating the U.S.
    Beijing isn't besting us at the game we assume to be underfoot.
    Rather, the Chinese Communist Party is winning because they
    aren't racing.
        The CCP weaponizes the interdependence of the global system
    in order to acquire advanced technologies at low cost and low
    risk. Beijing then focuses its resources on the areas where it
    sees actual competitive advantage. First, applying those
    technologies including to scale global systems and control
    international supply chains. And second, placing targeted risk-
    adjusted bets in potentially paradigm-shifting domains where
    first mover advantage actually matters.
        The strategy is working and it is asymmetric. It plays
    perfectly to China's strengths, including of scale,
    centralization, and industrial capacity. China's strategy also
    converts core U.S. characteristics into weaknesses. Beijing is
    able to benefit from U.S. innovation and investment.
        China preys on the openness of the American system for
    access and its decentralization for control. The risks and the
    threats of this approach are particularly acute today because,
    and this is core to the CCP's approach, the contemporary tech
    revolution is transforming the global order. Modern advances in
    technology are creating new markets, new methods of production,
    and new forms of control. If China can win the tech contest, it
    can capture production markets and control.
        Avoiding as much requires first understanding Beijing
    strategic orientation and second fighting back. That
    orientation begins with access to technology from the academic
    and especially from the commercial sectors. To access the
    commercial technology, Beijing leverages illicit means like
    industrial espionage and in China forced data localization.
        But Beijing, also and in particular, takes advantage of
    particular entirely illicit means. Beijing is manipulating not
    attacking the international business environment. Government-
    backed and government-guided Chinese entities go out into the
    international system to obtain technology through acquisitions,
    to ventures, direct and indirect investment, talent programs,
    and personnel recruitment, and even lawsuits.
        Those Chinese entities benefit from government support and
    guidance, freeing them from market forces and therefore
    allowing them to redeem strategic value from counterparts who
    are bound by economic logics. Alongside those go out vectors of
    tech acquisition. Beijing deploys a parallel and compounding
    bring-in program, leveraging the appeal of the Chinese market
    and Chinese industrial base to attract foreign IP, research and
    development, data, personnel, even capital.
        This strategy and positioning put all U.S. technology at
    risk. They ensure that the U.S. approach to tech development
    and leadership is not only a losing one, but in fact, fuels
    America's strategic adversary. America needs to change its
    game. First, the U.S. government needs to shift from protecting
    American technology from China to defending the U.S. market
    from China. Washington needs to impose real and rigorous
    restrictions on Chinese commercial entities operating in the
    United States or seeking to access the U.S. market.
        Such restrictions should cover direct and indirect
    investment, joint ventures, including minority stakes, and tech
    licensing. They should also cover construction and deployment
    of information systems, components, and software. Those
    restrictions should adopt presumptions of denial. They should
    also adopt definitions of Chinese entities that are robust
    enough that China cannot circumvent them through localization
    and shell companies.
        Second, the U.S. needs to activate its private sector to
    stop forfeiting critical U.S. resources to China and to start
    investing in the actual competition at hand. The private sector
    should have to choose between the U.S. and Chinese markets.
        Businesses that localize data research and development
    production in China, invest in Chinese entities, or maintain
    tech licensing deals with Chinese entities should not be
    eligible for federal procurement, defense industrial-based
    procurement, federal tax credits or other incentives. Those are
    all sticks.
        At the same time, the U.S. government needs to ensure that
    those companies that are opting for America and for the
    American market can invest, produce, and partner profitably in
    the United States. To do so, Washington needs to provide the
    infrastructure necessary for production, including through
    expanded provision of domestic energy and upstream resources, a
    favorable regulatory environment, and a skilled workforce.
        We have the chance to reclaim our core strengths and reset
    the playing field. America's market can serve America's
    interests if we protect it from China. American innovation can
    fuel us not our adversary if we direct it at the actual
    competitive arena. And our agility as a country can throw the
    deliberate, slow, centralized PRC system on its heels if we
    take the initiative. But all of that has to happen now. Thank
    you.
        [The prepared statement of Ms. de La Bruyere follows.]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Senator Hawley [presiding]. Thank you very much. Dr.
    Shivakumar, you are recognized for five minutes of testimony.
    The floor is yours.

     STATEMENT OF DR. SUJAI SHIVAKUMAR, SENIOR FELLOW, CENTER FOR
          STRATEGIC AND INTERNATIONAL STUDIES, WASHINGTON, DC

        Dr. Shivakumar. Thank you, Senator Hawley, and
    distinguished members of the committee. I'm honored to share my
    views on this important topic and concerning our nation's
    innovation strategy.
        Just a quick note that CSIS is a bipartisan non-profit
    policy research organization dedicated to advancing practical
    ideas to address the world's challenges with the core mission
    to define the future of natural security. Please note that CSIS
    does not take any institutional policy positions, so the views
    represented here are my own.
        So, as we begin our discussion today, I think it's
    important to keep in mind that the global strategic environment
    has changed fundamentally. In fact, the world's innovation
    landscape today is multipolar. Others can quickly grab U.S.
    ideas and run with them, as my colleague has just pointed out.
    Competitors and rivals are also rapidly developing their own
    ideas and have invested in scaling them up.
        So, there's an important fact here; that we need to pick up
    our own pace in this global race. U.S. innovation leadership
    depends critically on our own country's ability to invest in
    research, make new discoveries, and then bring those to the
    market faster and at competitive cost. So, when competitive
    technologies aren't developed or can't reach scale because
    commercialization tools are underfunded, others will seek seize
    the opportunity. So, this means that we must reinforce key
    elements of our own innovation ecosystem.
        A key point that I want to emphasize is that U.S.
    innovation and by extension, our competitiveness and national
    security, depends on sustained and substantial support to our
    federal R&D agencies and research institutions. Importantly, it
    also depends on our ability to convert the results of this
    research into products to meet the needs of the American
    people.
        While the U.S. remains an innovation powerhouse, it
    produces more IP than through our research universities and
    corporations than any other country in the world. That edge is
    shrinking, and not least because our competitors and
    adversaries are advancing proposed cuts to our leading science
    agencies and research universities further erode that
    advantage.
        In the past, there were few places where innovation
    inventions could be developed and, and rapidly commercialized
    that reality has changed. So, to maintain our competitive
    leadership and national security, we must surge investments
    into our domestic R&D technology, including scale up workforce
    development, advanced manufacturing, to ensure that the results
    of our research advantages U.S. security and everyday
    Americans.
        My second key point is to affirm that the SBIR program is a
    proven natural security asset, and that we must continue to
    strategically support and expand it.
        As someone who's directed multiple independent assessments
    of SBIR at the National Academies of Science and Engineering, I
    confirm that the program is sound in concept and effective in
    practice. It enables start startups and small businesses to
    bridge the valley of death, which is the gap between research
    or proof of concept and the commercial production.
        It allows agencies like DOD to procure cutting edge
    innovations far faster than conventional programs that the
    Pentagon has. And SBIR has catalyzed the success of companies
    like Qualcomm, which have transformed our daily communications,
    and today continues to support breakthrough technologies,
    including drones, next generation, reconnaissance, quantum
    technologies, and missile propellants.
        At a time of intensifying technological competition, SBIR
    awards contribute directly to our economic growth,
    technological leadership, and capabilities. Our adversaries and
    competitors have recognized the value of SBIR program for its
    proven outcomes and the technological leadership it has helped
    secure. As Chairman Ernst pointed out in her remarks, the DOD's
    internal report in 2021, documented efforts by state-sponsored
    Chinese firms targeting DOD's SBIR companies and that merits
    serious attention.
        But let's be clear, if a competitor is stealing your
    playbook, it's probably because your playbook works. To be
    sure, steps should be taken to defend small companies against
    cyberattacks and foreign efforts to acquire ownership or to
    steal technology.
        But SBIR supports small businesses that often lack the
    tools to protect themselves from this espionage, and they're
    often without in-house counsel, threat intelligence, or
    cybersecurity teams. So, we need to provide active support for
    their cybersecurity awareness and defense. In other words, our
    response should not be shut down or weaken the successful
    program, but in fact, to fortify it.
        For SBIR to work, it needs to be safe, stable and
    substantial and yet flexible. First, it needs long periods of
    reauthorization. A strong program can't thrive in a climate of
    fiscal and legislative uncertainty. Secondly, we should strive
    to avoid overregulation. Micro-level legislative requirements
    on the program tend to be less effective than coordination and
    encouragement at the program manager level.
        And third, we need to strengthen and encourage the
    transition to commercialization. SBIR companies help companies
    cross the valley of death in phase 1 and phase 2, but in many
    cases, that bridge ends halfway across the valley of death.
    There are different parts to add an additional arch, including
    perhaps an active agency-financed phase 3, particularly for
    agencies that don't have a procurement function.
        So, in conclusion, I just want to say that innovation
    without commercialization is in fact a lost opportunity, and in
    a world of accelerating competition, potential gifts to our
    adversaries. SBIR works, but it must be buttressed with
    cybersecurity support, flexible flow on funding to facilitate
    commercialization and programmatic stability. Most importantly,
    it must remain embedded within a strong ecosystem, one that is
    supported by sustained and substantial investment in our
    federal R&D agencies and research institutions.
        Thank you very much, and I look forward to your questions.
        [The prepared statement of Dr. Shivakumar follows.]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Senator Hawley. Thank you very much. Dr. Hannas, you're
    recognized for five minutes for your testimony. The floor is
    yours.

      STATEMENT OF DR. WILLIAM HANNAS, LEAD ANALYST AND RESEARCH
      PROFESSOR, GEORGETOWN UNIVERSITY'S CENTER FOR SECURITY AND
                 EMERGING TECHNOLOGY, RESTON, VIRGINIA

        Dr. Hannas. Thank you, Chair, Ranking Member Markey,
    distinguished members of the committee and staff. I'm grateful
    for the opportunity to testify on this topic.
        I'm a founding member of Georgetown University's Center for
    Security and Emerging Technology, where I track Chinese
    threats, technology threats posed by China. Prior to that, I
    was a senior intelligence service officer at CIA, managing the
    same portfolio. These efforts led to two books on Chinese
    industrial espionage in 2013 and 2021 into other studies on the
    topic.
        My interest in Chinese foreign tech transfer began as a
    graduate student preparing a thesis on China's cultural
    predisposition for holistic thought, which has served China
    well in practical terms, but hinders progress in basic science
    that has plagued China's since antiquity. I bring this up to
    emphasize that China's reliance on foreign ideas has historical
    roots not easily overcome.
        Another factor that drew me to the topic was the discovery
    that China treats foreign technology acquisition as an academic
    discipline. Keji qingbao, literally ``S&T Intelligence'', on a
    par with other scientific fields, replete with degree programs,
    how-to manuals, academic journals, and career positions
    supported by legislation and an army, some 100,000 S&T
    intelligence operatives. That's the term they use.
        So, the notion that China's informal transfer of foreign
    technology is done by opportunistic individuals is pure myth.
    This is a state-backed soup-to-nuts system that has been
    running at the central government's direction since the 1950s
    and is not abating, even as China's indigenous accomplishments
    grow.
        It's impossible to condense volumes of research into five
    minutes, but here are the basics. China uses three types of
    transfer practices; legal, illegal, and extra-legal. Illegal
    transfers run from insider operations, patent infringement,
    reverse engineering, to the hacking and clandestine exploits we
    read about in the press. These tech espionage cases are so
    numerous that the ODNI issues two annual reports, one for China
    and one for the rest of the world.
        Legal transfers done through China's U.S.-based
    subsidiaries, startup accelerators, targeted hires, direct and
    indirect investment, mergers and acquisitions, and tech-for-
    trade agreements are easy to spot, but hard to counter because
    U.S. participants and oversight officials often confuse legal
    with ``in the U.S. interest.''
        Finally, there are a dozen categories of extra-legal venues
    that China uses, including front organizations for deniability,
    paid short-term visits to state debriefing centers, overseas
    technical support, guilds, online recruiting, and of course,
    China's human talent recruitment programs.
        In a 2023 book on artificial intelligence, we gave examples
    of U.S. firms in China including Microsoft, Intel, and IBM,
    working with China on AI development and credited by the
    Chinese alumni of the programs as critical to China's success.
    In the same book we named 10 types of venues used to effect
    transfers from foreign academics such as school-to-school
    ``partnerships'', co-authorship, and a practice called ``using
    foreigners to draw in foreigners''.
        These practices threaten U.S. businesses large and small,
    the lateral especially vulnerable, owing to a scarcity of
    research funds and investment capital, shrinking talent pools,
    fewer opportunities to commercialize breakthroughs, inadequate
    due diligence, and limited venues for redress.
        So, what can be done? First, we must appreciate that the
    reason this is a problem at all is because our lead has shrunk
    to the point where theft matters. Whereas before we're so far
    ahead, it didn't matter. Rebuilding U.S. research,
    entrepreneurship, and productive capacity independently of
    whatever China is doing or stealing is the only sure way out.
        Meanwhile, we propose five common sense measures; Data on
    China's transfer practices should be gathered and shared with
    U.S. firms and academic compliance offices. Two, clear
    guidelines of what is legally permissible should be
    communicated to foreign actors contemplating research in the
    United States and the U.S. persons doing research, doing
    business in China.
        Three, members of China's overseas support guilds, talent
    recruitment programs, lobbying groups, and other united front
    operatives should register as foreign agents. Four, recipients
    of U.S. government funding should report contacts with or
    travel to China to minimize China's ability to benefit from
    U.S. federal and state level investment. Finally, there are
    opportunities for U.S. authorities to stand China's transfer
    apparatus on its head. By seeding these venues with persons
    disposed to support U.S. interests.
        We're past the point where this problem can be ignored. The
    gap between tech breakthroughs and consequences is measured now
    in weeks, which puts a premium on keeping what we invent. Thank
    you for this opportunity to address this issue.
        [The prepared statement of Dr. Hannas follows.]
       [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Chair [presiding]. Thank you very much for your testimony.
    And we will now go into our question answer period, and each
    member will have five minutes.
        I now recognize myself for five minutes of questions, and
    Ms. de La Bruyere, let's start with you. I was a proud leader
    in the creation of a new foreign ties due diligence process for
    SBIR in 2022. My INNOVATE Act would create a clear and
    consistent definition of foreign risk to improve agency's
    analysis of adversarial threats.
        Which methods does China most commonly use to exploit
    technology of innovative startups, and how can we best restrict
    the flow of those taxpayer dollars to compromised entities?
        Ms. de La Bruyere. Thank you for that question. I obviously
    can't answer without first prefacing that China has an immense
    arsenal and it's adaptive. So, when we put up protections,
    China tends to find or try to find ways around them. That said,
    common methods include first investment, including both
    directly via Chinese companies and funds, and indirectly as,
    for example, limited partners in U.S. funds.
        Second, China uses both customer and supply relationships
    as well as the information-sharing at those create, and
    personnel including as have been mentioned; talent programs,
    talent poaching, and embedding of personnel.
        Protecting against this requires top-down measures from
    Washington, and also, expectations put on companies that are
    receiving federal funding. From the top down, U.S. restrictions
    on Chinese investment and presence in the U.S. should be
    strengthened. For instance, CFIUS should be strengthened to
    respond to China's indirect investment methods as well as
    direct directed ones.
        But also, federal funding mechanisms like the SBIR program
    should include due diligence requirements. And those due
    diligence requirements have to be best-in-class, and they have
    to be updated for the realities of China's adaptive and
    indirect ways or means.
        It's not enough to say what's first-level ownership or what
    are direct investments coming into a funded entity. It's also
    not enough to say just what are its first-tier customers. Due
    diligence has to look at the indirect investments. It has to
    look for instance at customer as well as tiered-down suppliers.
        And due diligence processes have to be adaptive or
    proactive so that they're looking at what China's going to be
    doing next, not what it's already doing. These should be the
    case. They're largely not in the due diligence approaches and
    ecosystems that exist. So, that has to change.
        And then also from the bottom up, companies that are
    receiving federal funding should be expected to be doing and
    refreshing their due diligence throughout their lifespans. So,
    that should include looking at who they're taking money for and
    really vetting that for Chinese ties, who they're supplying to,
    who their customers are, who their partners are.
        There should be no entity whether a research university or
    a two-person startup in a garage that's getting U.S. federal
    funding that's also partnering with Chinese entities. And that
    should be fundamental and the penalties should include
    clawbacks because there has to be an actual risk in there.
        Chair. No, thank you. And that was very good. A lot of
    solutions just in that one answer, so I appreciate that. Dr.
    Hannas, in your testimony you discuss how U.S. oversight
    officials often confuse legal with ``in the U.S. interest.''
        Can you elaborate further on how to get our federal
    officials to stop awarding taxpayer-funded grants and contracts
    to companies that have clear ties to CCP espionage?
        Dr. Hannas. Simply said, but hard to implement. You need
    data and access to the data. Let me share a war story. Some
    years ago, I was part of a team reviewing bids of a large U.S.
    government contract. We had necked down some 200 bidders to a
    dozen and rank-ordered them.
        And by a pure chance, I noticed that one of the one of the
    companies which was in the top rank was pitching a professor at
    a U.S. engineering college, whom I remembered as a China talent
    program member who wrote software for China's bio industry. So,
    we drew the money line just above that company.
        This is not the way to operate. The event should have
    happened by design, not luck. It's entirely possible for the
    U.S. government to build detailed lists of persons and venues
    affiliated with China's technology transfer programs against
    which grant proposals can be vetted. In fact, we spearheaded a
    pilot a few years ago that enjoyed some success, but access was
    restricted. It was limited, which didn't do corporate America
    much good.
        Chair. And thank you for that. It's a clear demonstration
    of why my INNOVATE Act strengthens the denial authority and
    provides clarity to our program managers that they can't move
    forward with awards if there are clear threats out there. So, I
    really do appreciate it. We will go next to a Ranking Member
    Markey for his questions.
        Senator Markey. Thank you, Madam Chair. Dr. Shivakumar, as
    you know, the Small Business Innovation Research and the Small
    Business Technology Transfer programs will expire in just over
    two months. And these programs have played an essential role in
    driving our country's innovation, resulting in at least 70,000
    patents in 700 public companies. Since its inception in 1982,
    the program has resulted in more than 207,000 awards, totaling
    more than $72 billion, and you are one of the few researchers.
    Was that extensive analysis of these programs?
        So, could you speak, Doctor, to how multiple award winners
    are important to the growth of certain industries, and could
    you provide an example of a technology that would not exist
    without multiple award winners?
        Dr. Shivakumar. Certainly. Well, I was just last month in
    Colorado looking at the emergence of a quantum innovation
    cluster in the Mountain West region. There are a number of SBIR
    companies among those, and they are a limited number.
        So, if you think about the need to actually grow our
    quantum industry, and if you think of the particular
    solicitations, there are only going to be a limited number of
    these companies that can respond to any particular
    solicitation.
        So, the idea of those companies will build--well, by nature
    need to garner multiple awards in order to build scale and to
    grow the industry in that region. So, it's not just there are
    concerns about whether there are, is there is a problem with
    multiple award winners, people coming you know, gaming the
    system.
        There are cases to be made where multiple award winners are
    actually important to our national security, if we need to
    build up our quantum industry, for example. On the other hand,
    we have program managers at the various agencies who are best
    positioned to actually monitor any abuse of the program by
    gaming the system to get multiple awards.
        My recommendation is for the Senate or the Congress to sort
    of manage the program from here, but provide the program
    managers the resources and the confidence to actually manage
    their programs. If there are problems, let them document the
    award. If there are----
        Senator Markey. Let me ask. Could you speak to the impact
    of the 2022 due diligence program in protecting our SBIR and
    STTR program?
        Dr. Shivakumar. So, I think there is obviously an important
    aspect in protecting our IP, but there's also the consideration
    that it's a global race now in terms of innovation. There are
    multiple countries in the world, including China, that have
    strong innovation systems.
        And as you know, the old football saying, you can't win
    purely on defense. You need a very strong offense, which means
    that we need to supercharge our innovation system, by making
    sure that our universities churn out, our research institutions
    churn out new ideas by making sure that programs like SBIR take
    those ideas and bring them into businesses, build prototypes,
    get them ready for the market.
        And then to, scale those technologies further up so that we
    can be competitive internationally while also you know,
    creating new opportunities for Americans. So, yes, we need to
    defend, but I think we need to look at both sides of that
    equation as well. We need to have a strong offense in terms of
    a very vibrant innovation system.
        Senator Markey. Yes. And that strong offense would be not
    cutting the National Institutes of Health, not cutting
    investment in batteries and solar, and not cutting investment
    in the National Science Foundation, investing in our young
    people to compete.
        Here's a headline from just last week, ``China puts new
    restrictions on EV battery manufacturing technology.'' Now that
    they've made the breakthrough, now that there are companies
    like BYD, build your dreams, way ahead of Ford and General
    Motors, and way ahead of Tesla, they're now going to put
    restrictions on the transfer of any of their battery technology
    around the world.
        Then they invited us in, but their condition was we have to
    share our technology with them. Now that they're sprinting
    ahead, they're going to put restrictions on. So, it looks like
    they were playing us for Uncle Sucker the whole way. And we
    just have to be realistic about it. But the way to respond is
    not to cut our research in these critical areas. There's going
    to be 20 million all electric vehicles sold around the world
    this year. We only sell 17 million total vehicles in the United
    States each year. And so, we're seeding the future.
        Basically, what China is doing is putting up the walls to
    protect, not just against us, but anyone else now being able to
    compete effectively with them in the marketplace. And we just
    have to be ruthlessly realistic about that reality. Thank you,
    Madam Chair.
        Chair. Okay. Thank you, Ranking Member. And Senator Curtis,
    you're recognized for five minutes.
        Senator Curtis. Thank you, Madam Chair. I'm really proud to
    represent Utah. Like some of my colleagues, Utah represents 99
    percent small businesses. And this is just a really important
    committee and topic, it's the lifeblood of our state.
        Utah's a major entrepreneurial hub for innovation as well.
    A lot of our businesses have seen their intellectually property
    stolen, and Chinese entities frequently copycat their products.
    They see them on places like TEMU and other things like that.
    I'm actually convinced that our small businesses have a
    disproportionate burden here because they don't have compliance
    officers, they don't have layers of lawyers and accountants.
        So, I guess my question for all three of you is, how
    vulnerable are our startups specifically to this Chinese
    espionage and are there specific industries that are more at
    risk? Please.
        Ms. de La Bruyere. The short answer is highly vulnerable,
    and not only because of the resource constraints that small
    businesses face, but also because of the dearth of resource
    constraints that Chinese entities face. The way Beijing
    positions in the international commercial ecosystem is to
    state-led enterprise driven approach, where Chinese agents'
    companies go out, they have state backing and direction, and
    that means that they're not bound by market forces. Which lets
    them reap strategic advantage off of entities that are bound by
    economic logics, especially those like small businesses that
    have serious resource constraints.
        And ways Beijing does this include, targeting distress
    companies, companies on the verge of or after bankruptcy, ones
    that really need to raise investment rounds and will take
    investment from anyone that's willing to give them money, in
    short that have strategic value, but aren't necessarily on a
    commercial trajectory, or one that gives them the freedom to
    choose between long-term strategic interests for them or the
    country and Beijing.
        And that's a massive difficulty, and you can't solve that
    without having restrictions on China's role and the role of
    Chinese entities in the U.S. system.
        Senator Curtis. Thank you.
        Dr. Hannas. So, I made some notes on that point, and yes,
    indeed, they are especially vulnerable small businesses for a
    number of reasons. You know, one being the scarcity research
    funds and investment capital. So, it's not available here, so
    they look at China, even if they they're not looking at China,
    shrinking talent pools, plenty of talent available through
    China's diaspora community. But less and less, within the
    indigenous American population, fewer opportunities, and
    commercialized breakthroughs. That's big.
        They have discoveries, how do they bring it to market? Not
    easily done. And it was pointed out, inadequate due diligence.
    They don't have the wherewithal to determine, who are
    friendlies and who are not. And finally limited venues for
    redress. You discover something that you're an agreed party to
    an agreement, and what do you do about it? Very little you can
    do about it as a small business. So, yes, they are very
    vulnerable.
        Senator Curtis. The FBI said that China is ``the world's
    principal infringer of intellectual property,'' and that it
    uses laws and regulations to put foreign companies at a
    disadvantage and its own companies at an advantage.
        Earlier this year, I introduced the Combating China's
    Pilfering of Intellectual Property, CCP IP Act, which holds
    China accountable for stealing American ideas. This bill would
    enforce sanctions and visa restrictions on Chinese officials
    and citizens engaged in intellectual property.
        Can any of you walk us through how intellectual property
    threat, transfers into long-term economic or national security
    losses for the United States? Go ahead.
        Ms. de La Bruyere. I think to answer that question, you
    fundamentally go back to what China's trying to do with
    intellectual property. Beijing's not just developing cutting
    edge technology, Beijing is stealing cutting edge technology
    and then focusing on its application. So, the commercial and
    the industrial returns that come from that.
        And Beijing is like doing that for two primary objectives.
    One is to control international supply chains. If you control
    batteries, were mentioned, for instance, the global battery
    market, you control automobiles, and also you make sure that
    the U.S. depends on you, which gives you leverage in economic
    and geopolitical environments.
        And second, perhaps most importantly, offensively Beijing's
    working to build and to scale the global infrastructure for a
    new technological environment in information technology. For
    instance, a unified information network that collects all data
    and transmits all data. And if Beijing is able to do that, and
    it's directly applying technology to this end, then Beijing can
    control how markets work, how military work, how people
    perceive.
        Senator Curtis. Thank you. I'm sadly out of time.
    Appreciate your expertise, and I yield back.
        Chair. Senator Shaheen.
        Senator Shaheen. Thank you, Madam Chair. And thank you to
    each of our witnesses for your testimony today. I have to say,
    I agree with the premise that each of you have outlined about
    the threat that China poses to our innovation and the
    importance of the SBIR program, and reauthorizing it in
    ensuring that we continue to innovate.
        I just want to point out that last week, the minority on
    the Foreign Relations Committee issued a report on China that
    talks about the threat from China and the decisions that have
    been made in the first six months of this administration, that
    seed America's leadership in a whole range of issues.
        And one of the report's findings highlighted how America's
    withdrawal from international organizations, seeds influence to
    China, which in response, has increased its contributions and
    personnel across a whole range of international bodies. And by
    proposing a near zeroing out of U.S. contributions to
    international organizations like the World Intellectual
    Property Organization, WIPO, the administration risks allowing
    China to be the dominant voice and international discussions
    about the future of IP protections, including patents,
    copyrights, and trademarks.
        So, I would ask each of you how America's small businesses
    benefit from participation in international bodies like the
    World Intellectual Property Organization. One of my favorite
    statistics about small businesses, that they create 16 times
    more patents than large businesses. So, what happens around the
    IP protections that you all have outlined is critical. So why
    is it important that the United States participate in those
    kinds of bodies that provide those protections for our small
    businesses?
        Dr. Shivakumar. So, you know, there's interesting quote
    from Chinese leader who said that, the country that controls
    the standards and patents, controls the world. And they
    understand that very well, and they have a natural strategy, a
    2035 strategy to be a world leader in setting the standards.
        If you think about standards, in many respects, they're
    like language. They set the grammar, they set the vocabulary,
    the idiom, and the country that sets, you know, is in control
    of the language, controls the dialogue, controls the thought,
    controls the innovation in the sphere. So, it's extremely
    important that the United States, which has long dominated the
    standard setting environment, the institutions, sort of wake up
    and reassert itself. It's sort of, we have been in the lead for
    so long, like the proverbial story or the rabbit and the hare,
    we have sort of taken a nap.
        And so, the relevant agencies need to be prodded, hopefully
    from here, and to sort of take a leadership and make sure that
    we are ably represented, that the people who are in these
    standard setting organizations are trained and that we take a
    much more active, proactive role in the IP. We have a very
    strong still in our innovation system research IP. We are an IP
    machine in many ways, but we need to also have standards you
    know, part of that equation to make sure that our ideas are
    dominant, and that we have that advantage of being the standard
    setters.
        Senator Shaheen. So, if we don't pay our dues to WIPO the
    end of this year, we run the risk of not being able to
    participate again. And what kind of a disadvantage does that
    put the United States businesses in, if that happens?
        Dr. Shivakumar. Well, if somebody else is writing the rules
    by which you have to play, that certainly puts you at a
    disadvantage. So, that's not a situation where you want to be.
        Senator Shaheen. Thank you. Yes.
        Ms. de La Bruyere. If I may add, I think one of the
    underestimated risks of China's approach is that Beijing has
    co-opted international organizations, including and especially
    standard setting organizations, intellectual property
    organizations. And Beijing does so with the benefits of its
    centralization and scale. That means that even an activated
    U.S. approach to those organizations doesn't have any hope.
        China floods the ITU with members who are paid, they've
    pre-decided what standards they're going to form, which means
    that just by engaging in these standards, in these
    organizations, the U.S. will be at a disadvantage.
        So, the hope that the U.S. can claim is by extracting China
    from a system that has manipulated and restoring its integrity,
    such that activities go in a way that follows their actual
    rules and intent.
        Senator Shaheen. But if we're not at the table, how are we
    going to extract China and how are we going to hope to compete,
    if we're not even there?
        Ms. de La Bruyere. We need to establish organizations that
    don't have China in them or find ways like----
        Senator Shaheen. But again, how do we do that if we're not
    there to address the rules of those organizations and to
    establish that ability to make sure that China doesn't
    participate?
        Ms. de La Bruyere. You don't have to be part of an
    organization to launch a new one.
        Senator Shaheen. Are we in the process of doing that?
        Ms. de La Bruyere. I think that the most strategically
    significant move with international organizations the U.S.
    could make right now, would be to revoke China's permanent
    normal trade relations status. It's a world trade organization
    move, not a WIPO----
        Senator Shaheen. I wouldn't disagree with that at all. I
    think that that is not a bad move.
        Ms. de La Bruyere. And then that could have trickle down
    effects throughout other organizations that Beijing has co-
    opted.
        Chair. Very good. Thank you. That'll be our next project.
    So, thank you. I recognize Senator Young for five minutes.
        Senator Young. Thank you, Chair. As chairman of the
    National Security Council on Emerging Biotechnology, I have
    dedicated a significant amount of effort on the topic of making
    sure that we have a vibrant small business sector that can
    commercialize the many innovations we make in this country.
        And one of the key recommendations we have in that report
    is the urgent need to mobilize the private sector by enhancing
    the reach and the effectiveness of the Small Business
    Innovation Research and Small Business Technology Transfer
    programs. These programs are essential for advancing early-
    stage innovation and scaling U.S. technologies. They are
    proven; they have been bipartisan but we think they certainly
    can be improved.
        Mr. Hannas, you've been closely involved with the NSCEB,
    thank you for your assistance. You helped us shape
    recommendations. From your perspective, how critical is it that
    we emphasize and incentivize the commercialization of emerging
    technologies? Just touch again on that, but as importantly, how
    much your recommendation to make China's united front
    operatives register as foreign agents help advance that cause?
        Dr. Hannas. Yes, so the first point. I mean, this is where
    China excels in commercializing technology. They never set the
    world on fire in coming up with abstract indigenous theoretical
    discoveries. But what they do exceptionally well is
    commercialize what anybody in the world finds. We seem to have
    exported or lost that ability to commercialize. And there was a
    time when we could get along okay with royalties from patents,
    for inventions that we created. But those days are gone, need
    to commercialize.
        And here we might draw a lesson for once from China,
    something they're doing. I was kind of shocked to discovered a
    few years ago that they have what are called commercialization
    centers, which are anything from a storefront with two people
    in it, two acres wide, and stories tall complexes, that exist
    solely for the purpose of commercializing technology, both
    foreign and indigenous. They don't discriminate.
        If it's technology, they'll commercialize getting it to
    market and or weaponizing it, before anybody else does. I don't
    know that we have anything like that. And I think we might be
    able to learn a lesson from that. And your second question,
    Senator?
        Senator Young. If you could very briefly, because I have
    limited time, but just touch on your recommendation pertaining
    to making China's united front operatives register as foreign
    agents.
        Dr. Hannas. Well, clearly, they are. No one's held their
    feet to the fire to this extent. And again, it goes back to
    data. We need to understand what groups of people are involved.
    We already do understand that at a certain level, but we need
    to get this information into a database where it's scrutinized
    and made available to other people who can make these analytic
    judgements, and execute these decisions that we make in
    determining who are actually China's unpaid actors, China's
    influence operators. It's not done; it's hit and miss.
        Senator Young. You know, it seems to me a sports analogy is
    applicable here, a good defense is also a good offense, right?
    In this case, if we cut down on the theft of intellectual
    property, we leave it to our own market, our own investors, and
    entrepreneurs. If we up our game with respect to
    commercialization, to deploy whatever business model they think
    appropriate, to take advantage of those breakthroughs, creates
    jobs and prosperity and helps our national security. So, I
    think the two are very much linked.
        Ms. de La Bruyere, I'm sorry if I butchered your name. How
    can we better ensure sustained U.S. leadership in the
    development and deployment of emerging tech through your
    proposal to prohibit certain businesses from eligibility for
    federal procurement, if they run afoul of any of the
    prescriptions that you suggest; data research, procurement,
    localization, investment in Chinese entities, how would that
    work?
        Ms. de La Bruyere. That starts with defense, right? Part of
    that is then we're trying to defend our technology from China's
    access.
        Senator Young. Yes.
        Ms. de La Bruyere. Perhaps more important than that,
    because fundamentally defensible only works so well against
    China, is that moves like that, send a message to the private
    sector, and they tell the private sector that you have to make
    a choice between the U.S. market and between China. And also,
    that you can profit from investing in America and investment in
    the U.S. encountering of China can be a profitable thesis.
        The U.S.' greatest strength is our private sector, but that
    has to be what's activated for the contest against China. We
    can't just have the government impose restrictions and think
    that that will work. So moves that force a choice, and make U.S
    government support contingent on a competitive approach to
    China, send a signal to the private sector.
        Senator Young. Thank you. I'm out of time. Dr. Shivakumar,
    good to see you. I've enjoyed our work together. Chair.
        Chair. Yes, thank you, Senator Young. Senator Justice,
    you're recognized.
        Senator Justice. Thank you, Madam Chair, and Ranking
    Member, and all these wonderful witnesses. And I'm not going to
    attempt to butcher your last names, there's no way. So, for me,
    we're going to go with Emily, Doc 1, Doc 2. Okay.
        So, let me just start off by making a little bit of a
    statement, because I've got a lot of white hair. I'm a new kid
    on the block; I came here for the right reasons and period. I
    don't want anything. I don't want a thing in the world for me.
    But with all that being said, I can't for the life of me
    understand why all the smarts around this table, all the smarts
    here, all the smarts back there, why we can't just realize
    where we are.
        I mean, we have known forever and a day what China's doing,
    and we haven't done anything about it. And America believes
    that no matter what in the world happens, and I'm a believer
    too, no matter what in the world happens, it's all going to be
    great. And we can go to Wendy's and get Baby Dog chicken
    nuggets this afternoon, and we know we can't.
        But now, just think about this just for a second, and let
    me just take you back just in time. Jimmy Carter was the
    President. We'd given away the Panama Canal, we had interest
    rates and inflation rates at levels that nobody could ever
    fathom. We had gasoline lines; we had a hundred hostages in
    Iran, the Soviet Union was running so strong, it was
    unbelievable. And to be perfectly honest, a lot of us were
    afraid. At that point in time, who could have ever dreamed that
    the Soviet Union could stumble?
        And then all of a sudden, we elected Ronald Reagan. And
    just in a very, very, very short period, almost no time, Ronald
    Reagan was standing in front of the Berlin Wall saying,
    Gorbachev, tear down this wall, and the Soviet Union collapsed.
    Why do we not believe and move with the light speed that we
    should be moving with, that it could happen to us. And it can.
        We're right on the cusp right now of needing energy like
    you can imagine. Absolutely, we're going to have to decide
    between homes and industry, if we don't really get moving now.
    So why in the world does the smarts of this room that is
    unbelievable, not solve the problem? We've got to solve the
    problem.
        I mean, for God's sakes of living, I mean, if in Madam
    Chairman's home state, if people are out digging up seeds, and
    stealing our technology of how we grow these phenomenal crops
    that yield beyond belief, and I'm a farmer too, you know, what
    will they not do? What in the world will they not do?
        So, all I can say to you is just this, to the small
    business folks, and my only question would be just this that's
    already been asked 14 times, how do you protect them? They
    don't have a host of accountants or lawyers or whatever it may
    be, or advisors. How do you protect them? And literally, for
    all of us, a lot of y'all are really young and don't have white
    hair, but it'll probably happen to you sometime. I was skinny
    and had brown hair for a long time, and now look.
        But anyway, all that being said, absolutely, we have got to
    solve the problem. We got to solve the problem right now. How
    do you protect the small businesses? Let's go with Emily, Doc
    1, Doc 2, go very quickly. I've only got a minute, and I've
    said exactly how I feel. But at the end of the day, come on
    guys, come on. All of us got to pull the rope together. We have
    everything at stake. It's not time to be Democrats and
    Republicans. It's time for all of us to pull this rope
    together. Emily, please.
        Ms. de La Bruyere. We remove China from our market, and we
    incentivize companies not just to develop research but to
    produce.
        Senator Justice. Doc 1.
        Dr. Shivakumar. SBIR is a huge asset that have to
    accelerate technologies using our small businesses. We need to
    arm them with the wherewithal, the resources to inoculate
    themselves and to be aware so that they're not susceptible to
    this sort of theft.
        Senator Justice. Doc 2.
        Dr. Hannas. Level the playing field, so China can't
    continue to do what it has been doing.
        Senator Justice. A hundred percent right. Madam Chair, I'd
    defer my three, five seconds. Oh, I'm overtime. [Laughter.]
        Chair. Thank you, Senator Justice. And thanks for bringing
    up the Chinese theft of seeds in Iowa. That happened in 2013, I
    believe, and they were sentenced in 2016. But yes, it does
    happen. They steal our intellectual property and reverse
    engineer. So, we will next go to Senator Husted for five
    minutes. Thank you.
        Senator Husted. Thank you, Madam Chair. Thanks to the
    witnesses for joining us today. Complicated issue it seems in
    listening to you, and from the work that I've done in my life,
    it seems like we've got a situation where our freedom is being
    used against us. We allow Chinese students to study in our
    universities, not many times, but sometimes to our detriment,
    stealing intellectual property, our ideas, outright espionage.
        Anytime a small business sells into the Chinese market, I
    don't know how many times I've talked to a small business, said
    look, I was selling it. Next thing I know they're selling it.
    They stole my IP. I have no recourse in their courts. They have
    recourse though in our courts. We give their businesses the
    same protections we give our businesses, but yet, that's not
    reciprocated.
        Not to mention some of their advances clearly have also
    come from stealing technologies from other nations, from other
    innovations that go there. And I know in talking to small
    businesses since the tariff issue has come up, that they say --
    well a lot of times they say, well, I don't necessarily like
    them, however, it's about time somebody stands up and protects
    me from what's going on when I try to sell into China, and what
    they sell into our country and other countries.
        I'll ask each of you to comment on what recommendations
    would you make to the Trump administration as they're looking
    at the issue of trade with China, and how can we use our trade
    relationship or the bilateral conversations that are happening,
    to address some of the issues you've discussed today? Dr.
    Hannas, we can start with you and go down the line.
        Dr. Hannas. Again, my apologies. I'm not good at solutions.
    But there is one point that needs to be brought up that is
    germane I think to your question, and we didn't touch on it
    enough before. This is not solely a U.S. problem. You know,
    China does not discriminate among the countries that it
    exploits. Our book on Chinese industrial espionage, which it
    was translated in two languages, guess which two? Japanese and
    Korean. Because they're suffering the same problems we are.
        So, one of the things we can do is align ourselves with our
    allies who are suffering from the same depredations and come up
    with a common front against the problem. That would be my major
    recommendation.
        Senator Husted. Okay. Thank you.
        Dr. Shivakumar. Challenge system research, a fantastic
    entrepreneurial culture, but the scale up part of our
    innovation system infrastructure has eroded over a number of
    years. We need to rebuild that so that we are the ones who are
    first and foremost absorbing the IP that's coming out of our
    research universities faster than anybody else in the world.
        Senator Husted. And what do you think the barriers are to
    that? Because we have a lot of capital in this country. What is
    the barrier, why aren't we scaling it up?
        Dr. Shivakumar. Well, it's a sort of--we have basically
    hollowed out our manufacturing sector. So as a result, our
    ecosystem is incomplete. The Chinese have large state-owned
    enterprises. They have deep pockets. They're able to take ideas
    and scale them up. And we are kind of weak in that area. So,
    what we need to do is actually rebuild our innovation system so
    that it's the most competitive in the world. Go back to when it
    was.
        Senator Husted. It's very capital intensive to established.
        Dr. Shivakumar. It's capital intensive. It requires a lot
    of coordination across. It requires a strong--it's a
    multifaceted innovation system. It has worker training aspects
    to it; it has capital markets aspect to it. It has research and
    development aspects to it. All of these parts of the innovation
    system have to all work together independently as well as
    connect with each other.
        In fact, one of the advantages of the SBIR program is
    actually, it takes ideas that may be formed at a university
    lab, but the venture capitalist doesn't know whether it's a
    great idea. And so, by creating you know, a two-phase
    validation of the commercial potential and the technological
    potential of the technology, it basically flags to venture
    capitalists, our deep capital markets, that this is an idea
    that you need to invest in that helps to bring the technology
    partway across----
        Senator Husted. Well, our financial systems like sherbets,
    not speculative well----
        Dr. Shivakumar. Well, the financial system, it's a market.
    And like any market, it works well when there's lots more
    information. And this is what SBIR does.
        Senator Husted. Give chance for our last guest.
        Ms. de La Bruyere. I'll be sure on the trade front; we need
    to stop assuming that China's going to play by the rules or
    will ever compromise. And we should levy significantly higher
    tariffs on China. We should encourage our allies and partners
    to do the same, but with a coherent message that says that the
    international free trade system works. We should all be part of
    it, but not let China abuse it.
        And then we should accept that a message to the American
    people, that all this will come at a cost in the short term,
    but that cost is far more palatable than the long-term cost of
    not defending against China's manipulation.
        Senator Husted. So, thank you. And Madam Chair, you know,
    the three things that I heard from the answer: work with our
    partners, Japan, Korea, others who are experiencing the same
    problem, help Made in America work by reestablishing our
    manufacturing base in this country, and use tariffs against
    China as a tool to help get this accomplished. Thank you very
    much.
        Chair. Yes, thank you. I think this has been a very good
    hearing and a lot of good suggestions coming from our witnesses
    as well. So, I am grateful for the recent positive coverage
    that my INNOVATE Act has gotten from a number of people,
    including from the CSIS scholars, including provisions to draw
    in new entrants and focus on SBIR funding on companies that
    successfully scale innovations to market for private or
    government end users.
        And I ask unanimous consent to enter into the record an
    article by Phillip Singerman, senior advisor with Renewing
    American Innovation at CSIS. Not my favorite picture, but we'll
    have that entered into the record.
        Chair. So, without objection, so ordered. And Ranking
    Member Markey, did you have closing comments?
        Senator Markey. Well, if I may, I just have a couple of
    more questions. If I may.
        Chair. Yes, you may. Five minutes.
        Senator Markey. Thank you. As I mentioned in my opening
    statement, President Trump has single-handedly decimated our
    innovation ecosystem. As one professor has noted, over the last
    few months, an elaborate plan to ensure that China prevails in
    our global economic competition has taken shape. The plan's
    chief architects however are not China's leaders. They are U.S.
    politicians.
        And the professor goes on to say, ``The Trump
    administration's cuts to federal agencies are undermining the
    United States' ability to innovate. Hostile immigration
    policies are making it harder for U.S. firms, industries,
    universities, to attract the best ideas and talents. Wild
    threats of tariffs and restrictions on foreign supply chains
    are terrifying investors. President Trump has created the
    perfect storm to destroy our competitive edge.''
        So, Dr. Shivakumar, how will gutting our innovation
    ecosystem benefit China?
        Dr. Shivakumar. Well, it'll benefit China by taking us out
    of the race, clearly. But I think what we need to do is to
    actually supercharge our innovation system by reinforcing all
    the things that do work and fixing the things that don't. There
    are a number of connection points. And you know, our research
    system is something that we have been investing in for decades
    now, and it's a legacy system, and it requires reform, but at
    the same time, we reform it, you don't destroy it. It's an
    important part facet of our innovation system. It requires care
    and renovation and resources.
        Senator Markey. Yeah. So, over the Boston Public Library,
    it says ``The education of its people is the best defense of a
    nation.'' And that's been a bipartisan agreement, the Democrats
    and Republicans have had over generations, that it benefits our
    national security, it benefits our innovation culture.
        And in 1957, President Eisenhower enacted the National
    Defense Education Act. Sputnik was up in the air giving us an
    electronic finger from outer space. You are behind, you are
    behind, we're ahead of you. So, I went to college on a National
    Defense Student Loan, as did millions of other kids. We got to
    get in this race, we got to educate people because President
    Eisenhower recognized that the only way the United States was
    going to win this space race and protect our national security,
    was to invest in education, invest in those institutions,
    provide financial assistance to students.
        Now, in 2025, President Trump is doing the exact opposite;
    taking a sledgehammer to our world-renowned innovation
    ecosystem, dismantling our education system, and undermining
    America's competitive edge. And these impacts will be felt for
    generations to come. As one researcher said, if this continues,
    we are going to lose a generation of scientists.
        So, Dr. Shivakumar, what impact will President Trump's
    attacks have on American innovation, on National Security, our
    ability to attract the best and the brightest?
        Dr. Shivakumar. Well, I think you have described what the
    impacts will be, so I would agree with you. Our innovation
    system is tightly coupled with our research and development
    system and if you undermine that research and development part
    of our ecosystem, you slow down all the other parts of it as
    well. So, this is going to be a long-lasting negative impact.
        In fact, the proposed cuts to NSF and so forth, do take
    place. But this is what the President has proposed. I think
    it's for the President to propose, for Congress to dispose. So,
    I'm hopeful.
        Senator Markey. So, I've been in Congress for a while. I
    did not vote for most favored nation status for China. I was
    always very suspicious of them, especially after I went to
    China and I could see how they were stealing our intellectual
    property. When in the year 2000, there was a vote on making it
    permanent normal trade relations, there's nothing normal about
    trade relations with China. I voted no each time. But there was
    a bipartisan consensus, Democrat and Republican Presidents,
    Democrat and Republican leaders in the House and Senate. I was
    in the vast minority saying, no, we're going to be handing over
    our intellectual property.
        But they wanted to play, they were smart people thinking
    big strategic cards. They wanted to play the China card. And we
    went to ultimately turn over the card, it was a deuce. We
    didn't get anything in return. They didn't help us
    strategically; they just helped themselves economically.
        And now that they have the lead, they're putting up
    barriers. They have a battery that can recharge for five
    minutes and the car goes 400 miles. They cannot allow that to
    come to the United States for manufacturing, because they are
    now going to actually finish off this plan, which they had to
    take advantage of us. And then in turn have us not be able to
    compete with them on all of these key innovation technologies.
        That's why SBIR is so important. That's why all of the
    investment that we make in innovation and R&D is just so
    critical. And we are just unfortunately, increasingly, just
    leaving the playing field. And China, I'm sure is in a state of
    shock that we're doing it, not receiving anything in return
    from the Chinese as a reciprocal concession that is made to us.
    Okay. I thank you, Madam Chair. I just think this is such an
    important area for all of us to be able to focus on.
        Chair. Thank you, Ranking Member Markey. And thank you to
    our witnesses for your insight today to inform this discussion.
    Obviously, we all care very, very much about this issue. Our
    response to China's targeted exploitation of American
    innovators is of critical importance for America's
    competitiveness in the years to come.
        To maintain our edge, we have to do two things: Ensure
    taxpayer dollars are invested in the best and the brightest
    innovators with a plan to scale ideas from lab to market or to
    our war fighters. That's very important. And number two,
    eliminate loopholes by which CCP compromised firms gain
    funding.
        And I do want to be very clear here; there is a difference
    between companies who have won a handful of SBIR awards versus
    SBIR mills with hundreds of awards, over 40 years in the
    program. While it is a positive step that we have the foreign
    ties due diligence program in place, this data has revealed a
    concerning reality. 6 of the 25 largest recipients of SBIR
    awards at the Department of Defense have clear links to China.
    And still received nearly $180 million from the Pentagon in
    2023 and 2024. And that was after the implementation of foreign
    ties due diligence.
        Rather than focus on funding on a select, very select, few
    well connected companies who pursue joint ventures and other
    business ventures with China, my INNOVATE Act would target
    funding on firms looking to build and commercialize technology
    here, for the benefit of Americans. I will continue to shine a
    light on this issue and work towards reforms. And with that, I
    will remind you----
        Senator Markey. If I may----
        Chair. You had five minutes, Ranking Member Markey. And I
    would also ask that if anybody would like to take a look at the
    information, my report is on our Senate Small Business
    Committee website. You can go to the Republican tab, go under
    press releases, and you may read it for yourselves.
        Senator Markey. May I make a unanimous consent request?
        Chair. Yes.
        Senator Markey. I make a unanimous request that the
    independent Government Accountability Office evaluation of the
    due diligence program that focuses on the Small Business
    Innovation program and the Small Business Technology Transfer
    program, that found that all 11 agencies have successfully
    implemented the due diligence program--and I congratulate you
    on that--in 2022, continues to be successful. They're working,
    and they've identified the potential foreign risk, and they've
    addressed them. And I would just like to put that report in the
    record.
        Chair. Without objection.
        Senator Markey. So that all of that information is made
    available.
        Chair. And with that, I want to thank our witnesses for
    being here with us today. I ask unanimous consent that the
    record of today's hearing remain open for two weeks for members
    to submit question, revise and extend their remarks, and submit
    additional information into the record.
        Chair. And without objection, so ordered. And again, we
    want to thank our witnesses for being here today, and obviously
    an issue of great importance to all of us.
        And with that, the Committee on Small Business and
    Entrepreneurship stands adjourned.
        [Whereupon, at 3:55 p.m., the hearing was adjourned.]
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