[Senate Hearing 119-168]
[From the U.S. Government Publishing Office]
S. Hrg. 119-168
INNOVATION IN THE CROSSHAIRS: COUNTERING
CHINA'S INDUSTRIAL ESPIONAGE
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HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
AND ENTREPRENEURSHIP
OF THE
UNITED STATES SENATE
ONE HUNDRED NINETEENTH CONGRESS
FIRST SESSION
__________
JULY 23, 2025
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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
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COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
ONE HUNDRED NINETEENTH CONGRESS
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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
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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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