Hearings to examine innovation in the crosshairs, focusing on countering China's industrial espionage.

1[Senate Hearing 119-168]2[From the U.S. Government Publishing Office]34                                                      S. Hrg. 119-16856                INNOVATION IN THE CROSSHAIRS: COUNTERING7                      CHINA'S INDUSTRIAL ESPIONAGE8=======================================================================910                                HEARING1112                               BEFORE THE1314                      COMMITTEE ON SMALL BUSINESS15                          AND ENTREPRENEURSHIP1617                                 OF THE1819                          UNITED STATES SENATE2021                    ONE HUNDRED NINETEENTH CONGRESS2223                             FIRST SESSION2425                               __________2627                             JULY 23, 20252829                               __________3031      Printed for the use of the Committee on Small Business and32                            Entrepreneurship3334[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]3536        Available via the World Wide Web: http://www.govinfo.gov3738                                __________3940                       U.S. GOVERNMENT PUBLISHING OFFICE4161-657                      WASHINGTON : 202642=======================================================================4344            COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP45                    ONE HUNDRED NINETEENTH CONGRESS4647                              ----------4849                        JONI ERNST, Iowa, Chair50            EDWARD J. MARKEY, Massachusetts, Ranking Member51JAMES E. RISCH, Idaho                MARIA CANTWELL, Washington52RAND PAUL, Kentucky                  JEANNE SHAHEEN, New Hampshire53TIM SCOTT, South Carolina            CORY A. BOOKER, New Jersey54TODD YOUNG, Indiana                  CHRISTOPHER A. COONS, Delaware55JOSH HAWLEY, Missouri                MAZIE K. HIRONO, Hawaii56TED BUDD, North Carolina             JACKY ROSEN, Nevada57JOHN R. CURTIS, Utah                 JOHN W. HICKENLOOPER, Colorado58JAMES C. JUSTICE, West Virginia      ADAM B. SCHIFF, California59JON HUSTED, Ohio60                Meredith West, Republican Staff Director61                 Sean Moore, Democratic Staff Director6263                            C O N T E N T S6465                              ----------6667                             JULY 23, 20256869                           OPENING STATEMENTS7071                                                                   Page72Joni Ernst, U.S. Senator from Iowa, Chair........................     173Edward Markey, U.S. Senator from Massachusetts, Ranking Member...     37475                               WITNESSES7677Ms. Emily de La Bruyere, Senior Fellow, Foundation for Defense of78  Democracies, Sewickley, PA.....................................     679    Prepared statement...........................................     880Dr. Sujai Shivakumar, Senior Fellow, Center for Strategic and81  International Studies, Washington, DC..........................    1682    Prepared statement...........................................    1983Dr. William Hannas, Lead Analyst and Research Professor,84  Georgetown University's Center for Security and Emerging85  Technology, Reston, VA.........................................    2486    Prepared statement...........................................    268788              ADDITIONAL LETTERS/STATEMENTS FOR THE RECORD8990Ernst, Chair Joni91    Letter Dated May 16, 2025....................................    4492Gallagher, Dr. Patrick93    Testimony....................................................    4694Shivakumar, Sujai & Wessner, Charles95    Article Dated July 29, 2025..................................    5196Singerman, Philip97    Article Dated July 10, 2025..................................    5698U.S. Senate Committee on Small Business and Entrepreneurship99    Majority Report Dated May, 2025..............................    63100101                        QUESTIONS FOR THE RECORD102103Ms. Emily de La Bruyere104    Responses to questions submitted by Chair Ernst and Senators105      Scott and Booker...........................................    78106Dr. William Hannas107    Responses to questions submitted by Chair Ernst and Senators108      Scott, Cantwell, and Booker................................    83109110                     INNOVATION IN THE CROSSHAIRS:111                     COUNTERING CHINA'S INDUSTRIAL112                               ESPIONAGE113114                              ----------115116                        WEDNESDAY, JULY 23, 2025117118                      United States Senate,119                        Committee on Small Business120                                      and Entrepreneurship,121                                                    Washington, DC.122    The committee met, pursuant to notice, at 2:32 p.m., in123Room 428A, Russell Senate Office Building, Hon. Joni Ernst,124chairwoman of the committee, presiding.125    Present: Senators Ernst [presiding], Young, Hawley, Curtis,126Justice, Husted, Markey, and Shaheen.127128               OPENING STATEMENT OF SENATOR ERNST129130    Chair. I call the Committee on Small Business and131Entrepreneurship to order. Before we get started with the132business before us, I would like to take a moment to present a133Senate 20-year Service Award to the committee's clerk, Kathryn134Eden. Would you come forward, please, Kathryn.135    Kathryn came to the Senate in 2005 to serve as the136scheduler for her home state Senator, and later served as the137operations director for the Senate Committee on the Environment138and Public Works. Kathryn has served as the Small Business139Committee's chief clerk for 10 years under the leadership of140numerous chairman and ranking members of the committee,141including Senators Vitter, Cantwell, Shaheen, Rubio, Cardin,142Paul, Markey, and Ernst.143    As a non-designated staffer of the committee, the chief144clerk works for both the Republicans and the Democrats, which145can be extremely challenging to navigate. At times, Kathryn146makes being non-partisan look easy, and we all appreciate her147expertise, strong judgment, attention to detail,148responsiveness, and dedication to our members, staff, and149constituents.150    On behalf of all of the members of the committee and our151staffs, I want to thank Kathryn Eden for her service to the152Senate. Congratulations, Kathryn.153    [Applause.]154    Clerk. Thank you.155    Chair. You're very welcome. So, Ranking Member Markey, do156you have any comments?157    Senator Markey: I do have a few comments----158    Chair. Wonderful.159    Senator Markey [continuing]. To make while you make this160presentation, and that is that the Democrats join the161Republicans in thanking you, Kathryn, for 20 years of service.162Your attention to detail, your tireless work ethic, your years163of experience have shaped the very way this committee operates.164Nothing we do here is possible without you and your team.165    You represent the very best public service; committed,166capable, and always professional. And I know I speak for all of167our members when I say that we are enormously grateful for your16820 years of service. It's been outstanding. We're grateful for169all you've done, and we're looking forward to the years ahead.170    Chair. So, thank you for pausing just for a moment as we've171presented that award. 20-year pins are very hard to come by172here. And so, Kathryn, thank you very much for your service.173    Today's hearing comes at a pivotal moment. America has174consistently been at the forefront of technological innovation.175Nonetheless, our adversaries, especially China, are working176overtime to undermine us. Over the past 100 years, the United177States of America has catalyzed the world's most consequential178technology breakthroughs, from putting mankind on the moon, to179unlocking a whole new digital frontier.180    Americans didn't just invent, we built. We turned those big181dreams into real-world breakthroughs, securing a long and182prosperous period of economic might and global leadership. But183after a century of wins, we cannot become complacent. Over the184past 20 years, those empowering Washington have looked the185other way as China initiated a comprehensive industrial186espionage strategy.187    They're not hiding it either. The Chinese Communist Party188through its Made in China 2025 plan has made crystal clear its189goal: to eliminate U.S. technological leadership in critical190industries. We need to be more clear-eyed folks. China desires191nothing more than to surpass the United States technologically192and militarily.193    They want to impose their authoritarian ideology on the194world and destroy the West. If we want any shot at preserving195America's leadership and war fighting capabilities, we have to196lock down our innovation pipeline. The truth is, America has197left its door wide open, effectively inviting our adversaries198to take advantage.199    As a result, sensitive industries have become vulnerable to200exploitation, allowing countries like China to use well-known201techniques, including talent recruitment programs, to steal our202innovations. The CCP forces innovators across our vibrant203startup economy to hand over trade secrets and intellectual204property as a cost of doing business. They invest in American205firms not to help, but to scheme, snoop, and steal.206    The United States Trade Representative and FBI estimate207intellectual property theft by China costs our economy to $225208to $600 billion per year. The Small Business Innovation209Research, or SBIR, and Small Business Technology Transfer,210STTR, those programs are no exception. In 2021, the Pentagon211first sounded the alarm revealing the pervasive exploitation of212the SBIR program by foreign bad actors and recommended a213foreign ties due diligence review process for applicants.214    That's why through the SBIR and STTR Extension Act of 2022,215I fought to establish a framework to identify the extent of216foreign risk that each company coming through the doors and217stop awarding awards to malicious actors. It was a strong218start, but it isn't enough. Congress must take further action219to secure the critical technologies being cultivated in these220programs.221    In fact, my recent report on this subject showed that 64222percent of applications flagged for foreign risk were still223eligible to receive taxpayer dollars. That's unacceptable. I224ask unanimous consent to enter this report into the record.225    Chair. We cannot afford to keep investing taxpayer dollars226to develop and deploy our best homegrown technologies while227failing to safeguard them against theft by our adversaries.228This is why earlier this year, I introduced the INNOVATE Act.229It would tighten our defenses, standardizing foreign ties, due230diligence in SBIR across participating agencies, and giving231agencies more muscle to claw back award dollars when our232national security is threatened. It's just common sense.233    Let me be clear, this is only a first step. The disturbing234reality is that China is already conducting economic warfare in235our homeland by targeting our farmland and critical236infrastructure. If we want to win the next century and beyond,237we must protect our innovators, our intellectual property, and238the technologies that will shape our future. I'm looking239forward to hearing from our expert witnesses today on the scale240of these threats and response measures for Congress to241consider.242    I now recognize Ranking Member Markey for his opening243statement.244245                  STATEMENT OF SENATOR MARKEY246247    Senator Markey. Thank you, Madam Chair, very much.248    From the beginning of the Industrial Revolution,249Massachusetts has been at the epicenter of innovation for our250country. Although I will say that I'm only here because Thomas251Markey left to go to Dovan New Hampshire, where the Industrial252Revolution was raging and ultimately moved to Lawrence,253Massachusetts, where even larger plants were being built.254    And over the years, Massachusetts has been powered by the255world's top universities, research institutions, strong public256and private investments, and the best trained and brightest257individuals that can be found in our country and around the258world.259    The biggest threat to our innovation ecosystem, both in260Massachusetts and across the entire country, is not coming from261abroad. It is coming directly from 1600 Pennsylvania Avenue. It262is coming directly from the White House.263    We all agree on the importance of research, security, and264protecting our technology from China's espionage. There's no265doubt that American technology needs to be protected from266foreign adversaries, but right now it is President Trump267himself who is killing American innovation and China is reaping268the benefits of those decisions.269    Over the past seven months, President Trump has launched an270all-out attack on higher education, threatening to withhold271billions of dollars from universities that do not bend to the272will of the administration, proposed dismantling the Department273of Education beginning with laying off half of the department's274workforce, gutted programs, grants, and staff for research and275development at the U.S. Department of Agriculture, the276Department of Energy, the Environmental Protection Agency.277    Slashed the National Institutes of Health budget by 40278percent--that's research in Alzheimer's, and in Diabetes, and279Parkinson's, Cancer research--and laying off thousands and280thousands of researchers. And it has gutted the National281Science Foundation by 57 percent, and NASA by 24 percent,282repealed the Inflation Reduction Act for wind and solar, all283electric vehicles battery storage technologies.284    China looks at us and they're saying, ``Why are you gifting285us with the clean energy future for the world and the biotech286future for the world? Those are the industries of the 21st287century. Why? What did we do to deserve this gift from the288Trump administration?''289    And it has also even canceled previously awarded research290grants including one to Boston Children's Hospital that was291searching for a vaccine to fight all coronavirus viruses, and292he is restricting foreign students from enrolling in293universities and creating such a hostile environment that294future innovators and researchers are choosing to take their295talents elsewhere, including just staying in China. President296Trump is taking America's crown jewel and handing it to China297on a silver platter.298    Federal government plays an outsized role in ensuring299America has a competitive edge against the rest of the world,300including China, whether that be through grants, contracts,301funding for universities, friendly immigration, policies of302robust agency funding. In 2022, 41 percent of basic research in303the United States was federally funded, while only 35 percent304was funded privately. Additionally, nearly a third of this305federally-funded research was performed at universities.306    These attacks and cuts to innovation will not result in a307greater, stronger, wealthier America. In fact, President308Trump's proposed 22 percent cut in research and development309funding could shrink the U.S. economy by almost 4 percent. The310last time we saw such a setback was during the Great Recession.311    With China on our heels, instead of attacking universities,312gutting science-based agencies, canceling research grants, and313dissuading the best and the brightest from around the world314from moving here, we should be doubling down to ensure that the315United States can continue to lead the world in innovation.316    So, yes, I agree with my Republican colleagues that we must317protect our innovation and research that is being produced here318in America, but we also must make sure that we have something319to protect. And I look forward to hearing from our witnesses320today about the importance of investing in and protecting321American innovation.322    And thank you, Chair Ernst, for holding this hearing.323    Chair. Yes. And thank you, Ranking Member Markey. And324again, my apologies to our witnesses. They have called a second325vote, and because we don't have other members present, I think326we will go ahead and recess. We will come back--have you voted,327Josh?328    Senator Hawley. I have voted.329    Chair. You have voted. Would you rather we go ahead and330do----331    Senator Shaheen. Keep going.332    Chair. Okay. We'll go ahead if--Senator Hawley, we'll hand333the gavel to you so we don't have to recess, and we'll have the334witnesses proceed. So, if you want to go ahead and vote, Ed.335I'll read our introductions here so that we can start with our336witnesses. I apologize, we've got a lot of votes lately.337    Again, I want to extend a warm welcome to all of our338witnesses, and I'll go ahead with introductions of those339witnesses who are testifying here today. And I'm thankful that340you did take time out of your schedules to join us.341    First, Ms. Emily de La Bruyere is the senior fellow at the342Foundation for Defensive of Democracies, with a focus on China343policy. She is a co-founder of Horizon Advisory, a consulting344firm focused on the implications of China's competitive345approach to geopolitics.346    Emily holds affiliations with think tanks focused on347national security and competition with China, including as a348senior visiting fellow at the Krach Institute for Tech349Diplomacy at Purdue, and as a non-resident fellow at the350National Bureau of Asian Research. Ms. de La Bruyere holds a351bachelor's degree from Princeton University and a master's352degree from Sciences Po, Paris.353    Next, Dr. William Hannas--did I say that right? Hannas? I354want to make sure we get everyone's names right. Is lead355analyst and research professor at Georgetown Center for356Security and Emerging Technology.357    Previously, Dr. Hannas was a member of the Senior358Intelligence Service at the Central Intelligence Agency. He359started his career in the United States Navy as a cryptanalyst360of foreign codes and ciphers and later served with a joint361Special Operations Command at Fort Bragg. And thank you very362much for your service to our country.363    Dr. Hannas holds a bachelor's degree in Chinese history364from Temple University, a master's degree in Chinese from the365University of Chicago, and a PhD in East Asian languages and366linguistics from the University of Pennsylvania.367    And our minority witness today is Dr. Shivakumar. And Dr.368Shivakumar directs the Renewing American Innovation Program at369the Center for Strategic and International Studies, where he370also serves as a senior fellow.371    Previously, he directed the Innovation Policy Forum at the372National Academies of Sciences Engineering and Medicine. And373Dr. Shivakumar holds a bachelor's degree from Carleton374University, and a PhD in economics from George Mason375University. And thank you very much for joining us today.376    So, we'll start with our testimonies. And in front of you,377you will have a system of lights. Please press ``speak'' to378speak, and that green means you're good. But once you hit that379yellow button, you've got a minute left and we need to start380wrapping up. And when we hit red, your time will be expired.381    So, Ms. de La Bruyere, we are going to start with you. You382are recognized for five minutes.383384STATEMENT OF MS. EMILY DE LA BRUYERE, SENIOR FELLOW, FOUNDATION385      FOR DEFENSE OF DEMOCRACIES, SEWICKLEY, PENNSYLVANIA386387    Ms. de La Bruyere. Thank you for the opportunity to testify388today.389    China is winning the technological competition against the390United States. China is not winning by out-innovating the U.S.391Beijing isn't besting us at the game we assume to be underfoot.392Rather, the Chinese Communist Party is winning because they393aren't racing.394    The CCP weaponizes the interdependence of the global system395in order to acquire advanced technologies at low cost and low396risk. Beijing then focuses its resources on the areas where it397sees actual competitive advantage. First, applying those398technologies including to scale global systems and control399international supply chains. And second, placing targeted risk-400adjusted bets in potentially paradigm-shifting domains where401first mover advantage actually matters.402    The strategy is working and it is asymmetric. It plays403perfectly to China's strengths, including of scale,404centralization, and industrial capacity. China's strategy also405converts core U.S. characteristics into weaknesses. Beijing is406able to benefit from U.S. innovation and investment.407    China preys on the openness of the American system for408access and its decentralization for control. The risks and the409threats of this approach are particularly acute today because,410and this is core to the CCP's approach, the contemporary tech411revolution is transforming the global order. Modern advances in412technology are creating new markets, new methods of production,413and new forms of control. If China can win the tech contest, it414can capture production markets and control.415    Avoiding as much requires first understanding Beijing416strategic orientation and second fighting back. That417orientation begins with access to technology from the academic418and especially from the commercial sectors. To access the419commercial technology, Beijing leverages illicit means like420industrial espionage and in China forced data localization.421    But Beijing, also and in particular, takes advantage of422particular entirely illicit means. Beijing is manipulating not423attacking the international business environment. Government-424backed and government-guided Chinese entities go out into the425international system to obtain technology through acquisitions,426to ventures, direct and indirect investment, talent programs,427and personnel recruitment, and even lawsuits.428    Those Chinese entities benefit from government support and429guidance, freeing them from market forces and therefore430allowing them to redeem strategic value from counterparts who431are bound by economic logics. Alongside those go out vectors of432tech acquisition. Beijing deploys a parallel and compounding433bring-in program, leveraging the appeal of the Chinese market434and Chinese industrial base to attract foreign IP, research and435development, data, personnel, even capital.436    This strategy and positioning put all U.S. technology at437risk. They ensure that the U.S. approach to tech development438and leadership is not only a losing one, but in fact, fuels439America's strategic adversary. America needs to change its440game. First, the U.S. government needs to shift from protecting441American technology from China to defending the U.S. market442from China. Washington needs to impose real and rigorous443restrictions on Chinese commercial entities operating in the444United States or seeking to access the U.S. market.445    Such restrictions should cover direct and indirect446investment, joint ventures, including minority stakes, and tech447licensing. They should also cover construction and deployment448of information systems, components, and software. Those449restrictions should adopt presumptions of denial. They should450also adopt definitions of Chinese entities that are robust451enough that China cannot circumvent them through localization452and shell companies.453    Second, the U.S. needs to activate its private sector to454stop forfeiting critical U.S. resources to China and to start455investing in the actual competition at hand. The private sector456should have to choose between the U.S. and Chinese markets.457    Businesses that localize data research and development458production in China, invest in Chinese entities, or maintain459tech licensing deals with Chinese entities should not be460eligible for federal procurement, defense industrial-based461procurement, federal tax credits or other incentives. Those are462all sticks.463    At the same time, the U.S. government needs to ensure that464those companies that are opting for America and for the465American market can invest, produce, and partner profitably in466the United States. To do so, Washington needs to provide the467infrastructure necessary for production, including through468expanded provision of domestic energy and upstream resources, a469favorable regulatory environment, and a skilled workforce.470    We have the chance to reclaim our core strengths and reset471the playing field. America's market can serve America's472interests if we protect it from China. American innovation can473fuel us not our adversary if we direct it at the actual474competitive arena. And our agility as a country can throw the475deliberate, slow, centralized PRC system on its heels if we476take the initiative. But all of that has to happen now. Thank477you.478    [The prepared statement of Ms. de La Bruyere follows.]479    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]480481    Senator Hawley [presiding]. Thank you very much. Dr.482Shivakumar, you are recognized for five minutes of testimony.483The floor is yours.484485 STATEMENT OF DR. SUJAI SHIVAKUMAR, SENIOR FELLOW, CENTER FOR486      STRATEGIC AND INTERNATIONAL STUDIES, WASHINGTON, DC487488    Dr. Shivakumar. Thank you, Senator Hawley, and489distinguished members of the committee. I'm honored to share my490views on this important topic and concerning our nation's491innovation strategy.492    Just a quick note that CSIS is a bipartisan non-profit493policy research organization dedicated to advancing practical494ideas to address the world's challenges with the core mission495to define the future of natural security. Please note that CSIS496does not take any institutional policy positions, so the views497represented here are my own.498    So, as we begin our discussion today, I think it's499important to keep in mind that the global strategic environment500has changed fundamentally. In fact, the world's innovation501landscape today is multipolar. Others can quickly grab U.S.502ideas and run with them, as my colleague has just pointed out.503Competitors and rivals are also rapidly developing their own504ideas and have invested in scaling them up.505    So, there's an important fact here; that we need to pick up506our own pace in this global race. U.S. innovation leadership507depends critically on our own country's ability to invest in508research, make new discoveries, and then bring those to the509market faster and at competitive cost. So, when competitive510technologies aren't developed or can't reach scale because511commercialization tools are underfunded, others will seek seize512the opportunity. So, this means that we must reinforce key513elements of our own innovation ecosystem.514    A key point that I want to emphasize is that U.S.515innovation and by extension, our competitiveness and national516security, depends on sustained and substantial support to our517federal R&D agencies and research institutions. Importantly, it518also depends on our ability to convert the results of this519research into products to meet the needs of the American520people.521    While the U.S. remains an innovation powerhouse, it522produces more IP than through our research universities and523corporations than any other country in the world. That edge is524shrinking, and not least because our competitors and525adversaries are advancing proposed cuts to our leading science526agencies and research universities further erode that527advantage.528    In the past, there were few places where innovation529inventions could be developed and, and rapidly commercialized530that reality has changed. So, to maintain our competitive531leadership and national security, we must surge investments532into our domestic R&D technology, including scale up workforce533development, advanced manufacturing, to ensure that the results534of our research advantages U.S. security and everyday535Americans.536    My second key point is to affirm that the SBIR program is a537proven natural security asset, and that we must continue to538strategically support and expand it.539    As someone who's directed multiple independent assessments540of SBIR at the National Academies of Science and Engineering, I541confirm that the program is sound in concept and effective in542practice. It enables start startups and small businesses to543bridge the valley of death, which is the gap between research544or proof of concept and the commercial production.545    It allows agencies like DOD to procure cutting edge546innovations far faster than conventional programs that the547Pentagon has. And SBIR has catalyzed the success of companies548like Qualcomm, which have transformed our daily communications,549and today continues to support breakthrough technologies,550including drones, next generation, reconnaissance, quantum551technologies, and missile propellants.552    At a time of intensifying technological competition, SBIR553awards contribute directly to our economic growth,554technological leadership, and capabilities. Our adversaries and555competitors have recognized the value of SBIR program for its556proven outcomes and the technological leadership it has helped557secure. As Chairman Ernst pointed out in her remarks, the DOD's558internal report in 2021, documented efforts by state-sponsored559Chinese firms targeting DOD's SBIR companies and that merits560serious attention.561    But let's be clear, if a competitor is stealing your562playbook, it's probably because your playbook works. To be563sure, steps should be taken to defend small companies against564cyberattacks and foreign efforts to acquire ownership or to565steal technology.566    But SBIR supports small businesses that often lack the567tools to protect themselves from this espionage, and they're568often without in-house counsel, threat intelligence, or569cybersecurity teams. So, we need to provide active support for570their cybersecurity awareness and defense. In other words, our571response should not be shut down or weaken the successful572program, but in fact, to fortify it.573    For SBIR to work, it needs to be safe, stable and574substantial and yet flexible. First, it needs long periods of575reauthorization. A strong program can't thrive in a climate of576fiscal and legislative uncertainty. Secondly, we should strive577to avoid overregulation. Micro-level legislative requirements578on the program tend to be less effective than coordination and579encouragement at the program manager level.580    And third, we need to strengthen and encourage the581transition to commercialization. SBIR companies help companies582cross the valley of death in phase 1 and phase 2, but in many583cases, that bridge ends halfway across the valley of death.584There are different parts to add an additional arch, including585perhaps an active agency-financed phase 3, particularly for586agencies that don't have a procurement function.587    So, in conclusion, I just want to say that innovation588without commercialization is in fact a lost opportunity, and in589a world of accelerating competition, potential gifts to our590adversaries. SBIR works, but it must be buttressed with591cybersecurity support, flexible flow on funding to facilitate592commercialization and programmatic stability. Most importantly,593it must remain embedded within a strong ecosystem, one that is594supported by sustained and substantial investment in our595federal R&D agencies and research institutions.596    Thank you very much, and I look forward to your questions.597    [The prepared statement of Dr. Shivakumar follows.]598    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]599600    Senator Hawley. Thank you very much. Dr. Hannas, you're601recognized for five minutes for your testimony. The floor is602yours.603604  STATEMENT OF DR. WILLIAM HANNAS, LEAD ANALYST AND RESEARCH605  PROFESSOR, GEORGETOWN UNIVERSITY'S CENTER FOR SECURITY AND606             EMERGING TECHNOLOGY, RESTON, VIRGINIA607608    Dr. Hannas. Thank you, Chair, Ranking Member Markey,609distinguished members of the committee and staff. I'm grateful610for the opportunity to testify on this topic.611    I'm a founding member of Georgetown University's Center for612Security and Emerging Technology, where I track Chinese613threats, technology threats posed by China. Prior to that, I614was a senior intelligence service officer at CIA, managing the615same portfolio. These efforts led to two books on Chinese616industrial espionage in 2013 and 2021 into other studies on the617topic.618    My interest in Chinese foreign tech transfer began as a619graduate student preparing a thesis on China's cultural620predisposition for holistic thought, which has served China621well in practical terms, but hinders progress in basic science622that has plagued China's since antiquity. I bring this up to623emphasize that China's reliance on foreign ideas has historical624roots not easily overcome.625    Another factor that drew me to the topic was the discovery626that China treats foreign technology acquisition as an academic627discipline. Keji qingbao, literally ``S&T Intelligence'', on a628par with other scientific fields, replete with degree programs,629how-to manuals, academic journals, and career positions630supported by legislation and an army, some 100,000 S&T631intelligence operatives. That's the term they use.632    So, the notion that China's informal transfer of foreign633technology is done by opportunistic individuals is pure myth.634This is a state-backed soup-to-nuts system that has been635running at the central government's direction since the 1950s636and is not abating, even as China's indigenous accomplishments637grow.638    It's impossible to condense volumes of research into five639minutes, but here are the basics. China uses three types of640transfer practices; legal, illegal, and extra-legal. Illegal641transfers run from insider operations, patent infringement,642reverse engineering, to the hacking and clandestine exploits we643read about in the press. These tech espionage cases are so644numerous that the ODNI issues two annual reports, one for China645and one for the rest of the world.646    Legal transfers done through China's U.S.-based647subsidiaries, startup accelerators, targeted hires, direct and648indirect investment, mergers and acquisitions, and tech-for-649trade agreements are easy to spot, but hard to counter because650U.S. participants and oversight officials often confuse legal651with ``in the U.S. interest.''652    Finally, there are a dozen categories of extra-legal venues653that China uses, including front organizations for deniability,654paid short-term visits to state debriefing centers, overseas655technical support, guilds, online recruiting, and of course,656China's human talent recruitment programs.657    In a 2023 book on artificial intelligence, we gave examples658of U.S. firms in China including Microsoft, Intel, and IBM,659working with China on AI development and credited by the660Chinese alumni of the programs as critical to China's success.661In the same book we named 10 types of venues used to effect662transfers from foreign academics such as school-to-school663``partnerships'', co-authorship, and a practice called ``using664foreigners to draw in foreigners''.665    These practices threaten U.S. businesses large and small,666the lateral especially vulnerable, owing to a scarcity of667research funds and investment capital, shrinking talent pools,668fewer opportunities to commercialize breakthroughs, inadequate669due diligence, and limited venues for redress.670    So, what can be done? First, we must appreciate that the671reason this is a problem at all is because our lead has shrunk672to the point where theft matters. Whereas before we're so far673ahead, it didn't matter. Rebuilding U.S. research,674entrepreneurship, and productive capacity independently of675whatever China is doing or stealing is the only sure way out.676    Meanwhile, we propose five common sense measures; Data on677China's transfer practices should be gathered and shared with678U.S. firms and academic compliance offices. Two, clear679guidelines of what is legally permissible should be680communicated to foreign actors contemplating research in the681United States and the U.S. persons doing research, doing682business in China.683    Three, members of China's overseas support guilds, talent684recruitment programs, lobbying groups, and other united front685operatives should register as foreign agents. Four, recipients686of U.S. government funding should report contacts with or687travel to China to minimize China's ability to benefit from688U.S. federal and state level investment. Finally, there are689opportunities for U.S. authorities to stand China's transfer690apparatus on its head. By seeding these venues with persons691disposed to support U.S. interests.692    We're past the point where this problem can be ignored. The693gap between tech breakthroughs and consequences is measured now694in weeks, which puts a premium on keeping what we invent. Thank695you for this opportunity to address this issue.696    [The prepared statement of Dr. Hannas follows.]697   [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]698699    Chair [presiding]. Thank you very much for your testimony.700And we will now go into our question answer period, and each701member will have five minutes.702    I now recognize myself for five minutes of questions, and703Ms. de La Bruyere, let's start with you. I was a proud leader704in the creation of a new foreign ties due diligence process for705SBIR in 2022. My INNOVATE Act would create a clear and706consistent definition of foreign risk to improve agency's707analysis of adversarial threats.708    Which methods does China most commonly use to exploit709technology of innovative startups, and how can we best restrict710the flow of those taxpayer dollars to compromised entities?711    Ms. de La Bruyere. Thank you for that question. I obviously712can't answer without first prefacing that China has an immense713arsenal and it's adaptive. So, when we put up protections,714China tends to find or try to find ways around them. That said,715common methods include first investment, including both716directly via Chinese companies and funds, and indirectly as,717for example, limited partners in U.S. funds.718    Second, China uses both customer and supply relationships719as well as the information-sharing at those create, and720personnel including as have been mentioned; talent programs,721talent poaching, and embedding of personnel.722    Protecting against this requires top-down measures from723Washington, and also, expectations put on companies that are724receiving federal funding. From the top down, U.S. restrictions725on Chinese investment and presence in the U.S. should be726strengthened. For instance, CFIUS should be strengthened to727respond to China's indirect investment methods as well as728direct directed ones.729    But also, federal funding mechanisms like the SBIR program730should include due diligence requirements. And those due731diligence requirements have to be best-in-class, and they have732to be updated for the realities of China's adaptive and733indirect ways or means.734    It's not enough to say what's first-level ownership or what735are direct investments coming into a funded entity. It's also736not enough to say just what are its first-tier customers. Due737diligence has to look at the indirect investments. It has to738look for instance at customer as well as tiered-down suppliers.739    And due diligence processes have to be adaptive or740proactive so that they're looking at what China's going to be741doing next, not what it's already doing. These should be the742case. They're largely not in the due diligence approaches and743ecosystems that exist. So, that has to change.744    And then also from the bottom up, companies that are745receiving federal funding should be expected to be doing and746refreshing their due diligence throughout their lifespans. So,747that should include looking at who they're taking money for and748really vetting that for Chinese ties, who they're supplying to,749who their customers are, who their partners are.750    There should be no entity whether a research university or751a two-person startup in a garage that's getting U.S. federal752funding that's also partnering with Chinese entities. And that753should be fundamental and the penalties should include754clawbacks because there has to be an actual risk in there.755    Chair. No, thank you. And that was very good. A lot of756solutions just in that one answer, so I appreciate that. Dr.757Hannas, in your testimony you discuss how U.S. oversight758officials often confuse legal with ``in the U.S. interest.''759    Can you elaborate further on how to get our federal760officials to stop awarding taxpayer-funded grants and contracts761to companies that have clear ties to CCP espionage?762    Dr. Hannas. Simply said, but hard to implement. You need763data and access to the data. Let me share a war story. Some764years ago, I was part of a team reviewing bids of a large U.S.765government contract. We had necked down some 200 bidders to a766dozen and rank-ordered them.767    And by a pure chance, I noticed that one of the one of the768companies which was in the top rank was pitching a professor at769a U.S. engineering college, whom I remembered as a China talent770program member who wrote software for China's bio industry. So,771we drew the money line just above that company.772    This is not the way to operate. The event should have773happened by design, not luck. It's entirely possible for the774U.S. government to build detailed lists of persons and venues775affiliated with China's technology transfer programs against776which grant proposals can be vetted. In fact, we spearheaded a777pilot a few years ago that enjoyed some success, but access was778restricted. It was limited, which didn't do corporate America779much good.780    Chair. And thank you for that. It's a clear demonstration781of why my INNOVATE Act strengthens the denial authority and782provides clarity to our program managers that they can't move783forward with awards if there are clear threats out there. So, I784really do appreciate it. We will go next to a Ranking Member785Markey for his questions.786    Senator Markey. Thank you, Madam Chair. Dr. Shivakumar, as787you know, the Small Business Innovation Research and the Small788Business Technology Transfer programs will expire in just over789two months. And these programs have played an essential role in790driving our country's innovation, resulting in at least 70,000791patents in 700 public companies. Since its inception in 1982,792the program has resulted in more than 207,000 awards, totaling793more than $72 billion, and you are one of the few researchers.794Was that extensive analysis of these programs?795    So, could you speak, Doctor, to how multiple award winners796are important to the growth of certain industries, and could797you provide an example of a technology that would not exist798without multiple award winners?799    Dr. Shivakumar. Certainly. Well, I was just last month in800Colorado looking at the emergence of a quantum innovation801cluster in the Mountain West region. There are a number of SBIR802companies among those, and they are a limited number.803    So, if you think about the need to actually grow our804quantum industry, and if you think of the particular805solicitations, there are only going to be a limited number of806these companies that can respond to any particular807solicitation.808    So, the idea of those companies will build--well, by nature809need to garner multiple awards in order to build scale and to810grow the industry in that region. So, it's not just there are811concerns about whether there are, is there is a problem with812multiple award winners, people coming you know, gaming the813system.814    There are cases to be made where multiple award winners are815actually important to our national security, if we need to816build up our quantum industry, for example. On the other hand,817we have program managers at the various agencies who are best818positioned to actually monitor any abuse of the program by819gaming the system to get multiple awards.820    My recommendation is for the Senate or the Congress to sort821of manage the program from here, but provide the program822managers the resources and the confidence to actually manage823their programs. If there are problems, let them document the824award. If there are----825    Senator Markey. Let me ask. Could you speak to the impact826of the 2022 due diligence program in protecting our SBIR and827STTR program?828    Dr. Shivakumar. So, I think there is obviously an important829aspect in protecting our IP, but there's also the consideration830that it's a global race now in terms of innovation. There are831multiple countries in the world, including China, that have832strong innovation systems.833    And as you know, the old football saying, you can't win834purely on defense. You need a very strong offense, which means835that we need to supercharge our innovation system, by making836sure that our universities churn out, our research institutions837churn out new ideas by making sure that programs like SBIR take838those ideas and bring them into businesses, build prototypes,839get them ready for the market.840    And then to, scale those technologies further up so that we841can be competitive internationally while also you know,842creating new opportunities for Americans. So, yes, we need to843defend, but I think we need to look at both sides of that844equation as well. We need to have a strong offense in terms of845a very vibrant innovation system.846    Senator Markey. Yes. And that strong offense would be not847cutting the National Institutes of Health, not cutting848investment in batteries and solar, and not cutting investment849in the National Science Foundation, investing in our young850people to compete.851    Here's a headline from just last week, ``China puts new852restrictions on EV battery manufacturing technology.'' Now that853they've made the breakthrough, now that there are companies854like BYD, build your dreams, way ahead of Ford and General855Motors, and way ahead of Tesla, they're now going to put856restrictions on the transfer of any of their battery technology857around the world.858    Then they invited us in, but their condition was we have to859share our technology with them. Now that they're sprinting860ahead, they're going to put restrictions on. So, it looks like861they were playing us for Uncle Sucker the whole way. And we862just have to be realistic about it. But the way to respond is863not to cut our research in these critical areas. There's going864to be 20 million all electric vehicles sold around the world865this year. We only sell 17 million total vehicles in the United866States each year. And so, we're seeding the future.867    Basically, what China is doing is putting up the walls to868protect, not just against us, but anyone else now being able to869compete effectively with them in the marketplace. And we just870have to be ruthlessly realistic about that reality. Thank you,871Madam Chair.872    Chair. Okay. Thank you, Ranking Member. And Senator Curtis,873you're recognized for five minutes.874    Senator Curtis. Thank you, Madam Chair. I'm really proud to875represent Utah. Like some of my colleagues, Utah represents 99876percent small businesses. And this is just a really important877committee and topic, it's the lifeblood of our state.878    Utah's a major entrepreneurial hub for innovation as well.879A lot of our businesses have seen their intellectually property880stolen, and Chinese entities frequently copycat their products.881They see them on places like TEMU and other things like that.882I'm actually convinced that our small businesses have a883disproportionate burden here because they don't have compliance884officers, they don't have layers of lawyers and accountants.885    So, I guess my question for all three of you is, how886vulnerable are our startups specifically to this Chinese887espionage and are there specific industries that are more at888risk? Please.889    Ms. de La Bruyere. The short answer is highly vulnerable,890and not only because of the resource constraints that small891businesses face, but also because of the dearth of resource892constraints that Chinese entities face. The way Beijing893positions in the international commercial ecosystem is to894state-led enterprise driven approach, where Chinese agents'895companies go out, they have state backing and direction, and896that means that they're not bound by market forces. Which lets897them reap strategic advantage off of entities that are bound by898economic logics, especially those like small businesses that899have serious resource constraints.900    And ways Beijing does this include, targeting distress901companies, companies on the verge of or after bankruptcy, ones902that really need to raise investment rounds and will take903investment from anyone that's willing to give them money, in904short that have strategic value, but aren't necessarily on a905commercial trajectory, or one that gives them the freedom to906choose between long-term strategic interests for them or the907country and Beijing.908    And that's a massive difficulty, and you can't solve that909without having restrictions on China's role and the role of910Chinese entities in the U.S. system.911    Senator Curtis. Thank you.912    Dr. Hannas. So, I made some notes on that point, and yes,913indeed, they are especially vulnerable small businesses for a914number of reasons. You know, one being the scarcity research915funds and investment capital. So, it's not available here, so916they look at China, even if they they're not looking at China,917shrinking talent pools, plenty of talent available through918China's diaspora community. But less and less, within the919indigenous American population, fewer opportunities, and920commercialized breakthroughs. That's big.921    They have discoveries, how do they bring it to market? Not922easily done. And it was pointed out, inadequate due diligence.923They don't have the wherewithal to determine, who are924friendlies and who are not. And finally limited venues for925redress. You discover something that you're an agreed party to926an agreement, and what do you do about it? Very little you can927do about it as a small business. So, yes, they are very928vulnerable.929    Senator Curtis. The FBI said that China is ``the world's930principal infringer of intellectual property,'' and that it931uses laws and regulations to put foreign companies at a932disadvantage and its own companies at an advantage.933    Earlier this year, I introduced the Combating China's934Pilfering of Intellectual Property, CCP IP Act, which holds935China accountable for stealing American ideas. This bill would936enforce sanctions and visa restrictions on Chinese officials937and citizens engaged in intellectual property.938    Can any of you walk us through how intellectual property939threat, transfers into long-term economic or national security940losses for the United States? Go ahead.941    Ms. de La Bruyere. I think to answer that question, you942fundamentally go back to what China's trying to do with943intellectual property. Beijing's not just developing cutting944edge technology, Beijing is stealing cutting edge technology945and then focusing on its application. So, the commercial and946the industrial returns that come from that.947    And Beijing is like doing that for two primary objectives.948One is to control international supply chains. If you control949batteries, were mentioned, for instance, the global battery950market, you control automobiles, and also you make sure that951the U.S. depends on you, which gives you leverage in economic952and geopolitical environments.953    And second, perhaps most importantly, offensively Beijing's954working to build and to scale the global infrastructure for a955new technological environment in information technology. For956instance, a unified information network that collects all data957and transmits all data. And if Beijing is able to do that, and958it's directly applying technology to this end, then Beijing can959control how markets work, how military work, how people960perceive.961    Senator Curtis. Thank you. I'm sadly out of time.962Appreciate your expertise, and I yield back.963    Chair. Senator Shaheen.964    Senator Shaheen. Thank you, Madam Chair. And thank you to965each of our witnesses for your testimony today. I have to say,966I agree with the premise that each of you have outlined about967the threat that China poses to our innovation and the968importance of the SBIR program, and reauthorizing it in969ensuring that we continue to innovate.970    I just want to point out that last week, the minority on971the Foreign Relations Committee issued a report on China that972talks about the threat from China and the decisions that have973been made in the first six months of this administration, that974seed America's leadership in a whole range of issues.975    And one of the report's findings highlighted how America's976withdrawal from international organizations, seeds influence to977China, which in response, has increased its contributions and978personnel across a whole range of international bodies. And by979proposing a near zeroing out of U.S. contributions to980international organizations like the World Intellectual981Property Organization, WIPO, the administration risks allowing982China to be the dominant voice and international discussions983about the future of IP protections, including patents,984copyrights, and trademarks.985    So, I would ask each of you how America's small businesses986benefit from participation in international bodies like the987World Intellectual Property Organization. One of my favorite988statistics about small businesses, that they create 16 times989more patents than large businesses. So, what happens around the990IP protections that you all have outlined is critical. So why991is it important that the United States participate in those992kinds of bodies that provide those protections for our small993businesses?994    Dr. Shivakumar. So, you know, there's interesting quote995from Chinese leader who said that, the country that controls996the standards and patents, controls the world. And they997understand that very well, and they have a natural strategy, a9982035 strategy to be a world leader in setting the standards.999    If you think about standards, in many respects, they're1000like language. They set the grammar, they set the vocabulary,1001the idiom, and the country that sets, you know, is in control1002of the language, controls the dialogue, controls the thought,1003controls the innovation in the sphere. So, it's extremely1004important that the United States, which has long dominated the1005standard setting environment, the institutions, sort of wake up1006and reassert itself. It's sort of, we have been in the lead for1007so long, like the proverbial story or the rabbit and the hare,1008we have sort of taken a nap.1009    And so, the relevant agencies need to be prodded, hopefully1010from here, and to sort of take a leadership and make sure that1011we are ably represented, that the people who are in these1012standard setting organizations are trained and that we take a1013much more active, proactive role in the IP. We have a very1014strong still in our innovation system research IP. We are an IP1015machine in many ways, but we need to also have standards you1016know, part of that equation to make sure that our ideas are1017dominant, and that we have that advantage of being the standard1018setters.1019    Senator Shaheen. So, if we don't pay our dues to WIPO the1020end of this year, we run the risk of not being able to1021participate again. And what kind of a disadvantage does that1022put the United States businesses in, if that happens?1023    Dr. Shivakumar. Well, if somebody else is writing the rules1024by which you have to play, that certainly puts you at a1025disadvantage. So, that's not a situation where you want to be.1026    Senator Shaheen. Thank you. Yes.1027    Ms. de La Bruyere. If I may add, I think one of the1028underestimated risks of China's approach is that Beijing has1029co-opted international organizations, including and especially1030standard setting organizations, intellectual property1031organizations. And Beijing does so with the benefits of its1032centralization and scale. That means that even an activated1033U.S. approach to those organizations doesn't have any hope.1034    China floods the ITU with members who are paid, they've1035pre-decided what standards they're going to form, which means1036that just by engaging in these standards, in these1037organizations, the U.S. will be at a disadvantage.1038    So, the hope that the U.S. can claim is by extracting China1039from a system that has manipulated and restoring its integrity,1040such that activities go in a way that follows their actual1041rules and intent.1042    Senator Shaheen. But if we're not at the table, how are we1043going to extract China and how are we going to hope to compete,1044if we're not even there?1045    Ms. de La Bruyere. We need to establish organizations that1046don't have China in them or find ways like----1047    Senator Shaheen. But again, how do we do that if we're not1048there to address the rules of those organizations and to1049establish that ability to make sure that China doesn't1050participate?1051    Ms. de La Bruyere. You don't have to be part of an1052organization to launch a new one.1053    Senator Shaheen. Are we in the process of doing that?1054    Ms. de La Bruyere. I think that the most strategically1055significant move with international organizations the U.S.1056could make right now, would be to revoke China's permanent1057normal trade relations status. It's a world trade organization1058move, not a WIPO----1059    Senator Shaheen. I wouldn't disagree with that at all. I1060think that that is not a bad move.1061    Ms. de La Bruyere. And then that could have trickle down1062effects throughout other organizations that Beijing has co-1063opted.1064    Chair. Very good. Thank you. That'll be our next project.1065So, thank you. I recognize Senator Young for five minutes.1066    Senator Young. Thank you, Chair. As chairman of the1067National Security Council on Emerging Biotechnology, I have1068dedicated a significant amount of effort on the topic of making1069sure that we have a vibrant small business sector that can1070commercialize the many innovations we make in this country.1071    And one of the key recommendations we have in that report1072is the urgent need to mobilize the private sector by enhancing1073the reach and the effectiveness of the Small Business1074Innovation Research and Small Business Technology Transfer1075programs. These programs are essential for advancing early-1076stage innovation and scaling U.S. technologies. They are1077proven; they have been bipartisan but we think they certainly1078can be improved.1079    Mr. Hannas, you've been closely involved with the NSCEB,1080thank you for your assistance. You helped us shape1081recommendations. From your perspective, how critical is it that1082we emphasize and incentivize the commercialization of emerging1083technologies? Just touch again on that, but as importantly, how1084much your recommendation to make China's united front1085operatives register as foreign agents help advance that cause?1086    Dr. Hannas. Yes, so the first point. I mean, this is where1087China excels in commercializing technology. They never set the1088world on fire in coming up with abstract indigenous theoretical1089discoveries. But what they do exceptionally well is1090commercialize what anybody in the world finds. We seem to have1091exported or lost that ability to commercialize. And there was a1092time when we could get along okay with royalties from patents,1093for inventions that we created. But those days are gone, need1094to commercialize.1095    And here we might draw a lesson for once from China,1096something they're doing. I was kind of shocked to discovered a1097few years ago that they have what are called commercialization1098centers, which are anything from a storefront with two people1099in it, two acres wide, and stories tall complexes, that exist1100solely for the purpose of commercializing technology, both1101foreign and indigenous. They don't discriminate.1102    If it's technology, they'll commercialize getting it to1103market and or weaponizing it, before anybody else does. I don't1104know that we have anything like that. And I think we might be1105able to learn a lesson from that. And your second question,1106Senator?1107    Senator Young. If you could very briefly, because I have1108limited time, but just touch on your recommendation pertaining1109to making China's united front operatives register as foreign1110agents.1111    Dr. Hannas. Well, clearly, they are. No one's held their1112feet to the fire to this extent. And again, it goes back to1113data. We need to understand what groups of people are involved.1114We already do understand that at a certain level, but we need1115to get this information into a database where it's scrutinized1116and made available to other people who can make these analytic1117judgements, and execute these decisions that we make in1118determining who are actually China's unpaid actors, China's1119influence operators. It's not done; it's hit and miss.1120    Senator Young. You know, it seems to me a sports analogy is1121applicable here, a good defense is also a good offense, right?1122In this case, if we cut down on the theft of intellectual1123property, we leave it to our own market, our own investors, and1124entrepreneurs. If we up our game with respect to1125commercialization, to deploy whatever business model they think1126appropriate, to take advantage of those breakthroughs, creates1127jobs and prosperity and helps our national security. So, I1128think the two are very much linked.1129    Ms. de La Bruyere, I'm sorry if I butchered your name. How1130can we better ensure sustained U.S. leadership in the1131development and deployment of emerging tech through your1132proposal to prohibit certain businesses from eligibility for1133federal procurement, if they run afoul of any of the1134prescriptions that you suggest; data research, procurement,1135localization, investment in Chinese entities, how would that1136work?1137    Ms. de La Bruyere. That starts with defense, right? Part of1138that is then we're trying to defend our technology from China's1139access.1140    Senator Young. Yes.1141    Ms. de La Bruyere. Perhaps more important than that,1142because fundamentally defensible only works so well against1143China, is that moves like that, send a message to the private1144sector, and they tell the private sector that you have to make1145a choice between the U.S. market and between China. And also,1146that you can profit from investing in America and investment in1147the U.S. encountering of China can be a profitable thesis.1148    The U.S.' greatest strength is our private sector, but that1149has to be what's activated for the contest against China. We1150can't just have the government impose restrictions and think1151that that will work. So moves that force a choice, and make U.S1152government support contingent on a competitive approach to1153China, send a signal to the private sector.1154    Senator Young. Thank you. I'm out of time. Dr. Shivakumar,1155good to see you. I've enjoyed our work together. Chair.1156    Chair. Yes, thank you, Senator Young. Senator Justice,1157you're recognized.1158    Senator Justice. Thank you, Madam Chair, and Ranking1159Member, and all these wonderful witnesses. And I'm not going to1160attempt to butcher your last names, there's no way. So, for me,1161we're going to go with Emily, Doc 1, Doc 2. Okay.1162    So, let me just start off by making a little bit of a1163statement, because I've got a lot of white hair. I'm a new kid1164on the block; I came here for the right reasons and period. I1165don't want anything. I don't want a thing in the world for me.1166But with all that being said, I can't for the life of me1167understand why all the smarts around this table, all the smarts1168here, all the smarts back there, why we can't just realize1169where we are.1170    I mean, we have known forever and a day what China's doing,1171and we haven't done anything about it. And America believes1172that no matter what in the world happens, and I'm a believer1173too, no matter what in the world happens, it's all going to be1174great. And we can go to Wendy's and get Baby Dog chicken1175nuggets this afternoon, and we know we can't.1176    But now, just think about this just for a second, and let1177me just take you back just in time. Jimmy Carter was the1178President. We'd given away the Panama Canal, we had interest1179rates and inflation rates at levels that nobody could ever1180fathom. We had gasoline lines; we had a hundred hostages in1181Iran, the Soviet Union was running so strong, it was1182unbelievable. And to be perfectly honest, a lot of us were1183afraid. At that point in time, who could have ever dreamed that1184the Soviet Union could stumble?1185    And then all of a sudden, we elected Ronald Reagan. And1186just in a very, very, very short period, almost no time, Ronald1187Reagan was standing in front of the Berlin Wall saying,1188Gorbachev, tear down this wall, and the Soviet Union collapsed.1189Why do we not believe and move with the light speed that we1190should be moving with, that it could happen to us. And it can.1191    We're right on the cusp right now of needing energy like1192you can imagine. Absolutely, we're going to have to decide1193between homes and industry, if we don't really get moving now.1194So why in the world does the smarts of this room that is1195unbelievable, not solve the problem? We've got to solve the1196problem.1197    I mean, for God's sakes of living, I mean, if in Madam1198Chairman's home state, if people are out digging up seeds, and1199stealing our technology of how we grow these phenomenal crops1200that yield beyond belief, and I'm a farmer too, you know, what1201will they not do? What in the world will they not do?1202    So, all I can say to you is just this, to the small1203business folks, and my only question would be just this that's1204already been asked 14 times, how do you protect them? They1205don't have a host of accountants or lawyers or whatever it may1206be, or advisors. How do you protect them? And literally, for1207all of us, a lot of y'all are really young and don't have white1208hair, but it'll probably happen to you sometime. I was skinny1209and had brown hair for a long time, and now look.1210    But anyway, all that being said, absolutely, we have got to1211solve the problem. We got to solve the problem right now. How1212do you protect the small businesses? Let's go with Emily, Doc12131, Doc 2, go very quickly. I've only got a minute, and I've1214said exactly how I feel. But at the end of the day, come on1215guys, come on. All of us got to pull the rope together. We have1216everything at stake. It's not time to be Democrats and1217Republicans. It's time for all of us to pull this rope1218together. Emily, please.1219    Ms. de La Bruyere. We remove China from our market, and we1220incentivize companies not just to develop research but to1221produce.1222    Senator Justice. Doc 1.1223    Dr. Shivakumar. SBIR is a huge asset that have to1224accelerate technologies using our small businesses. We need to1225arm them with the wherewithal, the resources to inoculate1226themselves and to be aware so that they're not susceptible to1227this sort of theft.1228    Senator Justice. Doc 2.1229    Dr. Hannas. Level the playing field, so China can't1230continue to do what it has been doing.1231    Senator Justice. A hundred percent right. Madam Chair, I'd1232defer my three, five seconds. Oh, I'm overtime. [Laughter.]1233    Chair. Thank you, Senator Justice. And thanks for bringing1234up the Chinese theft of seeds in Iowa. That happened in 2013, I1235believe, and they were sentenced in 2016. But yes, it does1236happen. They steal our intellectual property and reverse1237engineer. So, we will next go to Senator Husted for five1238minutes. Thank you.1239    Senator Husted. Thank you, Madam Chair. Thanks to the1240witnesses for joining us today. Complicated issue it seems in1241listening to you, and from the work that I've done in my life,1242it seems like we've got a situation where our freedom is being1243used against us. We allow Chinese students to study in our1244universities, not many times, but sometimes to our detriment,1245stealing intellectual property, our ideas, outright espionage.1246    Anytime a small business sells into the Chinese market, I1247don't know how many times I've talked to a small business, said1248look, I was selling it. Next thing I know they're selling it.1249They stole my IP. I have no recourse in their courts. They have1250recourse though in our courts. We give their businesses the1251same protections we give our businesses, but yet, that's not1252reciprocated.1253    Not to mention some of their advances clearly have also1254come from stealing technologies from other nations, from other1255innovations that go there. And I know in talking to small1256businesses since the tariff issue has come up, that they say --1257well a lot of times they say, well, I don't necessarily like1258them, however, it's about time somebody stands up and protects1259me from what's going on when I try to sell into China, and what1260they sell into our country and other countries.1261    I'll ask each of you to comment on what recommendations1262would you make to the Trump administration as they're looking1263at the issue of trade with China, and how can we use our trade1264relationship or the bilateral conversations that are happening,1265to address some of the issues you've discussed today? Dr.1266Hannas, we can start with you and go down the line.1267    Dr. Hannas. Again, my apologies. I'm not good at solutions.1268But there is one point that needs to be brought up that is1269germane I think to your question, and we didn't touch on it1270enough before. This is not solely a U.S. problem. You know,1271China does not discriminate among the countries that it1272exploits. Our book on Chinese industrial espionage, which it1273was translated in two languages, guess which two? Japanese and1274Korean. Because they're suffering the same problems we are.1275    So, one of the things we can do is align ourselves with our1276allies who are suffering from the same depredations and come up1277with a common front against the problem. That would be my major1278recommendation.1279    Senator Husted. Okay. Thank you.1280    Dr. Shivakumar. Challenge system research, a fantastic1281entrepreneurial culture, but the scale up part of our1282innovation system infrastructure has eroded over a number of1283years. We need to rebuild that so that we are the ones who are1284first and foremost absorbing the IP that's coming out of our1285research universities faster than anybody else in the world.1286    Senator Husted. And what do you think the barriers are to1287that? Because we have a lot of capital in this country. What is1288the barrier, why aren't we scaling it up?1289    Dr. Shivakumar. Well, it's a sort of--we have basically1290hollowed out our manufacturing sector. So as a result, our1291ecosystem is incomplete. The Chinese have large state-owned1292enterprises. They have deep pockets. They're able to take ideas1293and scale them up. And we are kind of weak in that area. So,1294what we need to do is actually rebuild our innovation system so1295that it's the most competitive in the world. Go back to when it1296was.1297    Senator Husted. It's very capital intensive to established.1298    Dr. Shivakumar. It's capital intensive. It requires a lot1299of coordination across. It requires a strong--it's a1300multifaceted innovation system. It has worker training aspects1301to it; it has capital markets aspect to it. It has research and1302development aspects to it. All of these parts of the innovation1303system have to all work together independently as well as1304connect with each other.1305    In fact, one of the advantages of the SBIR program is1306actually, it takes ideas that may be formed at a university1307lab, but the venture capitalist doesn't know whether it's a1308great idea. And so, by creating you know, a two-phase1309validation of the commercial potential and the technological1310potential of the technology, it basically flags to venture1311capitalists, our deep capital markets, that this is an idea1312that you need to invest in that helps to bring the technology1313partway across----1314    Senator Husted. Well, our financial systems like sherbets,1315not speculative well----1316    Dr. Shivakumar. Well, the financial system, it's a market.1317And like any market, it works well when there's lots more1318information. And this is what SBIR does.1319    Senator Husted. Give chance for our last guest.1320    Ms. de La Bruyere. I'll be sure on the trade front; we need1321to stop assuming that China's going to play by the rules or1322will ever compromise. And we should levy significantly higher1323tariffs on China. We should encourage our allies and partners1324to do the same, but with a coherent message that says that the1325international free trade system works. We should all be part of1326it, but not let China abuse it.1327    And then we should accept that a message to the American1328people, that all this will come at a cost in the short term,1329but that cost is far more palatable than the long-term cost of1330not defending against China's manipulation.1331    Senator Husted. So, thank you. And Madam Chair, you know,1332the three things that I heard from the answer: work with our1333partners, Japan, Korea, others who are experiencing the same1334problem, help Made in America work by reestablishing our1335manufacturing base in this country, and use tariffs against1336China as a tool to help get this accomplished. Thank you very1337much.1338    Chair. Yes, thank you. I think this has been a very good1339hearing and a lot of good suggestions coming from our witnesses1340as well. So, I am grateful for the recent positive coverage1341that my INNOVATE Act has gotten from a number of people,1342including from the CSIS scholars, including provisions to draw1343in new entrants and focus on SBIR funding on companies that1344successfully scale innovations to market for private or1345government end users.1346    And I ask unanimous consent to enter into the record an1347article by Phillip Singerman, senior advisor with Renewing1348American Innovation at CSIS. Not my favorite picture, but we'll1349have that entered into the record.1350    Chair. So, without objection, so ordered. And Ranking1351Member Markey, did you have closing comments?1352    Senator Markey. Well, if I may, I just have a couple of1353more questions. If I may.1354    Chair. Yes, you may. Five minutes.1355    Senator Markey. Thank you. As I mentioned in my opening1356statement, President Trump has single-handedly decimated our1357innovation ecosystem. As one professor has noted, over the last1358few months, an elaborate plan to ensure that China prevails in1359our global economic competition has taken shape. The plan's1360chief architects however are not China's leaders. They are U.S.1361politicians.1362    And the professor goes on to say, ``The Trump1363administration's cuts to federal agencies are undermining the1364United States' ability to innovate. Hostile immigration1365policies are making it harder for U.S. firms, industries,1366universities, to attract the best ideas and talents. Wild1367threats of tariffs and restrictions on foreign supply chains1368are terrifying investors. President Trump has created the1369perfect storm to destroy our competitive edge.''1370    So, Dr. Shivakumar, how will gutting our innovation1371ecosystem benefit China?1372    Dr. Shivakumar. Well, it'll benefit China by taking us out1373of the race, clearly. But I think what we need to do is to1374actually supercharge our innovation system by reinforcing all1375the things that do work and fixing the things that don't. There1376are a number of connection points. And you know, our research1377system is something that we have been investing in for decades1378now, and it's a legacy system, and it requires reform, but at1379the same time, we reform it, you don't destroy it. It's an1380important part facet of our innovation system. It requires care1381and renovation and resources.1382    Senator Markey. Yeah. So, over the Boston Public Library,1383it says ``The education of its people is the best defense of a1384nation.'' And that's been a bipartisan agreement, the Democrats1385and Republicans have had over generations, that it benefits our1386national security, it benefits our innovation culture.1387    And in 1957, President Eisenhower enacted the National1388Defense Education Act. Sputnik was up in the air giving us an1389electronic finger from outer space. You are behind, you are1390behind, we're ahead of you. So, I went to college on a National1391Defense Student Loan, as did millions of other kids. We got to1392get in this race, we got to educate people because President1393Eisenhower recognized that the only way the United States was1394going to win this space race and protect our national security,1395was to invest in education, invest in those institutions,1396provide financial assistance to students.1397    Now, in 2025, President Trump is doing the exact opposite;1398taking a sledgehammer to our world-renowned innovation1399ecosystem, dismantling our education system, and undermining1400America's competitive edge. And these impacts will be felt for1401generations to come. As one researcher said, if this continues,1402we are going to lose a generation of scientists.1403    So, Dr. Shivakumar, what impact will President Trump's1404attacks have on American innovation, on National Security, our1405ability to attract the best and the brightest?1406    Dr. Shivakumar. Well, I think you have described what the1407impacts will be, so I would agree with you. Our innovation1408system is tightly coupled with our research and development1409system and if you undermine that research and development part1410of our ecosystem, you slow down all the other parts of it as1411well. So, this is going to be a long-lasting negative impact.1412    In fact, the proposed cuts to NSF and so forth, do take1413place. But this is what the President has proposed. I think1414it's for the President to propose, for Congress to dispose. So,1415I'm hopeful.1416    Senator Markey. So, I've been in Congress for a while. I1417did not vote for most favored nation status for China. I was1418always very suspicious of them, especially after I went to1419China and I could see how they were stealing our intellectual1420property. When in the year 2000, there was a vote on making it1421permanent normal trade relations, there's nothing normal about1422trade relations with China. I voted no each time. But there was1423a bipartisan consensus, Democrat and Republican Presidents,1424Democrat and Republican leaders in the House and Senate. I was1425in the vast minority saying, no, we're going to be handing over1426our intellectual property.1427    But they wanted to play, they were smart people thinking1428big strategic cards. They wanted to play the China card. And we1429went to ultimately turn over the card, it was a deuce. We1430didn't get anything in return. They didn't help us1431strategically; they just helped themselves economically.1432    And now that they have the lead, they're putting up1433barriers. They have a battery that can recharge for five1434minutes and the car goes 400 miles. They cannot allow that to1435come to the United States for manufacturing, because they are1436now going to actually finish off this plan, which they had to1437take advantage of us. And then in turn have us not be able to1438compete with them on all of these key innovation technologies.1439    That's why SBIR is so important. That's why all of the1440investment that we make in innovation and R&D is just so1441critical. And we are just unfortunately, increasingly, just1442leaving the playing field. And China, I'm sure is in a state of1443shock that we're doing it, not receiving anything in return1444from the Chinese as a reciprocal concession that is made to us.1445Okay. I thank you, Madam Chair. I just think this is such an1446important area for all of us to be able to focus on.1447    Chair. Thank you, Ranking Member Markey. And thank you to1448our witnesses for your insight today to inform this discussion.1449Obviously, we all care very, very much about this issue. Our1450response to China's targeted exploitation of American1451innovators is of critical importance for America's1452competitiveness in the years to come.1453    To maintain our edge, we have to do two things: Ensure1454taxpayer dollars are invested in the best and the brightest1455innovators with a plan to scale ideas from lab to market or to1456our war fighters. That's very important. And number two,1457eliminate loopholes by which CCP compromised firms gain1458funding.1459    And I do want to be very clear here; there is a difference1460between companies who have won a handful of SBIR awards versus1461SBIR mills with hundreds of awards, over 40 years in the1462program. While it is a positive step that we have the foreign1463ties due diligence program in place, this data has revealed a1464concerning reality. 6 of the 25 largest recipients of SBIR1465awards at the Department of Defense have clear links to China.1466And still received nearly $180 million from the Pentagon in14672023 and 2024. And that was after the implementation of foreign1468ties due diligence.1469    Rather than focus on funding on a select, very select, few1470well connected companies who pursue joint ventures and other1471business ventures with China, my INNOVATE Act would target1472funding on firms looking to build and commercialize technology1473here, for the benefit of Americans. I will continue to shine a1474light on this issue and work towards reforms. And with that, I1475will remind you----1476    Senator Markey. If I may----1477    Chair. You had five minutes, Ranking Member Markey. And I1478would also ask that if anybody would like to take a look at the1479information, my report is on our Senate Small Business1480Committee website. You can go to the Republican tab, go under1481press releases, and you may read it for yourselves.1482    Senator Markey. May I make a unanimous consent request?1483    Chair. Yes.1484    Senator Markey. I make a unanimous request that the1485independent Government Accountability Office evaluation of the1486due diligence program that focuses on the Small Business1487Innovation program and the Small Business Technology Transfer1488program, that found that all 11 agencies have successfully1489implemented the due diligence program--and I congratulate you1490on that--in 2022, continues to be successful. They're working,1491and they've identified the potential foreign risk, and they've1492addressed them. And I would just like to put that report in the1493record.1494    Chair. Without objection.1495    Senator Markey. So that all of that information is made1496available.1497    Chair. And with that, I want to thank our witnesses for1498being here with us today. I ask unanimous consent that the1499record of today's hearing remain open for two weeks for members1500to submit question, revise and extend their remarks, and submit1501additional information into the record.1502    Chair. And without objection, so ordered. And again, we1503want to thank our witnesses for being here today, and obviously1504an issue of great importance to all of us.1505    And with that, the Committee on Small Business and1506Entrepreneurship stands adjourned.1507    [Whereupon, at 3:55 p.m., the hearing was adjourned.]1508   [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]15091510                     [all]