[Senate Hearing 119-168] [From the U.S. Government Publishing Office] S. Hrg. 119-168 INNOVATION IN THE CROSSHAIRS: COUNTERING CHINA'S INDUSTRIAL ESPIONAGE ======================================================================= HEARING BEFORE THE COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP OF THE UNITED STATES SENATE ONE HUNDRED NINETEENTH CONGRESS FIRST SESSION __________ JULY 23, 2025 __________ Printed for the use of the Committee on Small Business and Entrepreneurship [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] Available via the World Wide Web: http://www.govinfo.gov __________ U.S. GOVERNMENT PUBLISHING OFFICE 61-657 WASHINGTON : 2026 ======================================================================= COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP ONE HUNDRED NINETEENTH CONGRESS ---------- JONI ERNST, Iowa, Chair EDWARD J. MARKEY, Massachusetts, Ranking Member JAMES E. RISCH, Idaho MARIA CANTWELL, Washington RAND PAUL, Kentucky JEANNE SHAHEEN, New Hampshire TIM SCOTT, South Carolina CORY A. BOOKER, New Jersey TODD YOUNG, Indiana CHRISTOPHER A. COONS, Delaware JOSH HAWLEY, Missouri MAZIE K. HIRONO, Hawaii TED BUDD, North Carolina JACKY ROSEN, Nevada JOHN R. CURTIS, Utah JOHN W. HICKENLOOPER, Colorado JAMES C. JUSTICE, West Virginia ADAM B. SCHIFF, California JON HUSTED, Ohio Meredith West, Republican Staff Director Sean Moore, Democratic Staff Director C O N T E N T S ---------- JULY 23, 2025 OPENING STATEMENTS Page Joni Ernst, U.S. Senator from Iowa, Chair........................ 1 Edward Markey, U.S. Senator from Massachusetts, Ranking Member... 3 WITNESSES Ms. Emily de La Bruyere, Senior Fellow, Foundation for Defense of Democracies, Sewickley, PA..................................... 6 Prepared statement........................................... 8 Dr. Sujai Shivakumar, Senior Fellow, Center for Strategic and International Studies, Washington, DC.......................... 16 Prepared statement........................................... 19 Dr. William Hannas, Lead Analyst and Research Professor, Georgetown University's Center for Security and Emerging Technology, Reston, VA......................................... 24 Prepared statement........................................... 26 ADDITIONAL LETTERS/STATEMENTS FOR THE RECORD Ernst, Chair Joni Letter Dated May 16, 2025.................................... 44 Gallagher, Dr. Patrick Testimony.................................................... 46 Shivakumar, Sujai & Wessner, Charles Article Dated July 29, 2025.................................. 51 Singerman, Philip Article Dated July 10, 2025.................................. 56 U.S. Senate Committee on Small Business and Entrepreneurship Majority Report Dated May, 2025.............................. 63 QUESTIONS FOR THE RECORD Ms. Emily de La Bruyere Responses to questions submitted by Chair Ernst and Senators Scott and Booker........................................... 78 Dr. William Hannas Responses to questions submitted by Chair Ernst and Senators Scott, Cantwell, and Booker................................ 83 INNOVATION IN THE CROSSHAIRS: COUNTERING CHINA'S INDUSTRIAL ESPIONAGE ---------- WEDNESDAY, JULY 23, 2025 United States Senate, Committee on Small Business and Entrepreneurship, Washington, DC. The committee met, pursuant to notice, at 2:32 p.m., in Room 428A, Russell Senate Office Building, Hon. Joni Ernst, chairwoman of the committee, presiding. Present: Senators Ernst [presiding], Young, Hawley, Curtis, Justice, Husted, Markey, and Shaheen. OPENING STATEMENT OF SENATOR ERNST Chair. I call the Committee on Small Business and Entrepreneurship to order. Before we get started with the business before us, I would like to take a moment to present a Senate 20-year Service Award to the committee's clerk, Kathryn Eden. Would you come forward, please, Kathryn. Kathryn came to the Senate in 2005 to serve as the scheduler for her home state Senator, and later served as the operations director for the Senate Committee on the Environment and Public Works. Kathryn has served as the Small Business Committee's chief clerk for 10 years under the leadership of numerous chairman and ranking members of the committee, including Senators Vitter, Cantwell, Shaheen, Rubio, Cardin, Paul, Markey, and Ernst. As a non-designated staffer of the committee, the chief clerk works for both the Republicans and the Democrats, which can be extremely challenging to navigate. At times, Kathryn makes being non-partisan look easy, and we all appreciate her expertise, strong judgment, attention to detail, responsiveness, and dedication to our members, staff, and constituents. On behalf of all of the members of the committee and our staffs, I want to thank Kathryn Eden for her service to the Senate. Congratulations, Kathryn. [Applause.] Clerk. Thank you. Chair. You're very welcome. So, Ranking Member Markey, do you have any comments? Senator Markey: I do have a few comments---- Chair. Wonderful. Senator Markey [continuing]. To make while you make this presentation, and that is that the Democrats join the Republicans in thanking you, Kathryn, for 20 years of service. Your attention to detail, your tireless work ethic, your years of experience have shaped the very way this committee operates. Nothing we do here is possible without you and your team. You represent the very best public service; committed, capable, and always professional. And I know I speak for all of our members when I say that we are enormously grateful for your 20 years of service. It's been outstanding. We're grateful for all you've done, and we're looking forward to the years ahead. Chair. So, thank you for pausing just for a moment as we've presented that award. 20-year pins are very hard to come by here. And so, Kathryn, thank you very much for your service. Today's hearing comes at a pivotal moment. America has consistently been at the forefront of technological innovation. Nonetheless, our adversaries, especially China, are working overtime to undermine us. Over the past 100 years, the United States of America has catalyzed the world's most consequential technology breakthroughs, from putting mankind on the moon, to unlocking a whole new digital frontier. Americans didn't just invent, we built. We turned those big dreams into real-world breakthroughs, securing a long and prosperous period of economic might and global leadership. But after a century of wins, we cannot become complacent. Over the past 20 years, those empowering Washington have looked the other way as China initiated a comprehensive industrial espionage strategy. They're not hiding it either. The Chinese Communist Party through its Made in China 2025 plan has made crystal clear its goal: to eliminate U.S. technological leadership in critical industries. We need to be more clear-eyed folks. China desires nothing more than to surpass the United States technologically and militarily. They want to impose their authoritarian ideology on the world and destroy the West. If we want any shot at preserving America's leadership and war fighting capabilities, we have to lock down our innovation pipeline. The truth is, America has left its door wide open, effectively inviting our adversaries to take advantage. As a result, sensitive industries have become vulnerable to exploitation, allowing countries like China to use well-known techniques, including talent recruitment programs, to steal our innovations. The CCP forces innovators across our vibrant startup economy to hand over trade secrets and intellectual property as a cost of doing business. They invest in American firms not to help, but to scheme, snoop, and steal. The United States Trade Representative and FBI estimate intellectual property theft by China costs our economy to $225 to $600 billion per year. The Small Business Innovation Research, or SBIR, and Small Business Technology Transfer, STTR, those programs are no exception. In 2021, the Pentagon first sounded the alarm revealing the pervasive exploitation of the SBIR program by foreign bad actors and recommended a foreign ties due diligence review process for applicants. That's why through the SBIR and STTR Extension Act of 2022, I fought to establish a framework to identify the extent of foreign risk that each company coming through the doors and stop awarding awards to malicious actors. It was a strong start, but it isn't enough. Congress must take further action to secure the critical technologies being cultivated in these programs. In fact, my recent report on this subject showed that 64 percent of applications flagged for foreign risk were still eligible to receive taxpayer dollars. That's unacceptable. I ask unanimous consent to enter this report into the record. Chair. We cannot afford to keep investing taxpayer dollars to develop and deploy our best homegrown technologies while failing to safeguard them against theft by our adversaries. This is why earlier this year, I introduced the INNOVATE Act. It would tighten our defenses, standardizing foreign ties, due diligence in SBIR across participating agencies, and giving agencies more muscle to claw back award dollars when our national security is threatened. It's just common sense. Let me be clear, this is only a first step. The disturbing reality is that China is already conducting economic warfare in our homeland by targeting our farmland and critical infrastructure. If we want to win the next century and beyond, we must protect our innovators, our intellectual property, and the technologies that will shape our future. I'm looking forward to hearing from our expert witnesses today on the scale of these threats and response measures for Congress to consider. I now recognize Ranking Member Markey for his opening statement. STATEMENT OF SENATOR MARKEY Senator Markey. Thank you, Madam Chair, very much. From the beginning of the Industrial Revolution, Massachusetts has been at the epicenter of innovation for our country. Although I will say that I'm only here because Thomas Markey left to go to Dovan New Hampshire, where the Industrial Revolution was raging and ultimately moved to Lawrence, Massachusetts, where even larger plants were being built. And over the years, Massachusetts has been powered by the world's top universities, research institutions, strong public and private investments, and the best trained and brightest individuals that can be found in our country and around the world. The biggest threat to our innovation ecosystem, both in Massachusetts and across the entire country, is not coming from abroad. It is coming directly from 1600 Pennsylvania Avenue. It is coming directly from the White House. We all agree on the importance of research, security, and protecting our technology from China's espionage. There's no doubt that American technology needs to be protected from foreign adversaries, but right now it is President Trump himself who is killing American innovation and China is reaping the benefits of those decisions. Over the past seven months, President Trump has launched an all-out attack on higher education, threatening to withhold billions of dollars from universities that do not bend to the will of the administration, proposed dismantling the Department of Education beginning with laying off half of the department's workforce, gutted programs, grants, and staff for research and development at the U.S. Department of Agriculture, the Department of Energy, the Environmental Protection Agency. Slashed the National Institutes of Health budget by 40 percent--that's research in Alzheimer's, and in Diabetes, and Parkinson's, Cancer research--and laying off thousands and thousands of researchers. And it has gutted the National Science Foundation by 57 percent, and NASA by 24 percent, repealed the Inflation Reduction Act for wind and solar, all electric vehicles battery storage technologies. China looks at us and they're saying, ``Why are you gifting us with the clean energy future for the world and the biotech future for the world? Those are the industries of the 21st century. Why? What did we do to deserve this gift from the Trump administration?'' And it has also even canceled previously awarded research grants including one to Boston Children's Hospital that was searching for a vaccine to fight all coronavirus viruses, and he is restricting foreign students from enrolling in universities and creating such a hostile environment that future innovators and researchers are choosing to take their talents elsewhere, including just staying in China. President Trump is taking America's crown jewel and handing it to China on a silver platter. Federal government plays an outsized role in ensuring America has a competitive edge against the rest of the world, including China, whether that be through grants, contracts, funding for universities, friendly immigration, policies of robust agency funding. In 2022, 41 percent of basic research in the United States was federally funded, while only 35 percent was funded privately. Additionally, nearly a third of this federally-funded research was performed at universities. These attacks and cuts to innovation will not result in a greater, stronger, wealthier America. In fact, President Trump's proposed 22 percent cut in research and development funding could shrink the U.S. economy by almost 4 percent. The last time we saw such a setback was during the Great Recession. With China on our heels, instead of attacking universities, gutting science-based agencies, canceling research grants, and dissuading the best and the brightest from around the world from moving here, we should be doubling down to ensure that the United States can continue to lead the world in innovation. So, yes, I agree with my Republican colleagues that we must protect our innovation and research that is being produced here in America, but we also must make sure that we have something to protect. And I look forward to hearing from our witnesses today about the importance of investing in and protecting American innovation. And thank you, Chair Ernst, for holding this hearing. Chair. Yes. And thank you, Ranking Member Markey. And again, my apologies to our witnesses. They have called a second vote, and because we don't have other members present, I think we will go ahead and recess. We will come back--have you voted, Josh? Senator Hawley. I have voted. Chair. You have voted. Would you rather we go ahead and do---- Senator Shaheen. Keep going. Chair. Okay. We'll go ahead if--Senator Hawley, we'll hand the gavel to you so we don't have to recess, and we'll have the witnesses proceed. So, if you want to go ahead and vote, Ed. I'll read our introductions here so that we can start with our witnesses. I apologize, we've got a lot of votes lately. Again, I want to extend a warm welcome to all of our witnesses, and I'll go ahead with introductions of those witnesses who are testifying here today. And I'm thankful that you did take time out of your schedules to join us. First, Ms. Emily de La Bruyere is the senior fellow at the Foundation for Defensive of Democracies, with a focus on China policy. She is a co-founder of Horizon Advisory, a consulting firm focused on the implications of China's competitive approach to geopolitics. Emily holds affiliations with think tanks focused on national security and competition with China, including as a senior visiting fellow at the Krach Institute for Tech Diplomacy at Purdue, and as a non-resident fellow at the National Bureau of Asian Research. Ms. de La Bruyere holds a bachelor's degree from Princeton University and a master's degree from Sciences Po, Paris. Next, Dr. William Hannas--did I say that right? Hannas? I want to make sure we get everyone's names right. Is lead analyst and research professor at Georgetown Center for Security and Emerging Technology. Previously, Dr. Hannas was a member of the Senior Intelligence Service at the Central Intelligence Agency. He started his career in the United States Navy as a cryptanalyst of foreign codes and ciphers and later served with a joint Special Operations Command at Fort Bragg. And thank you very much for your service to our country. Dr. Hannas holds a bachelor's degree in Chinese history from Temple University, a master's degree in Chinese from the University of Chicago, and a PhD in East Asian languages and linguistics from the University of Pennsylvania. And our minority witness today is Dr. Shivakumar. And Dr. Shivakumar directs the Renewing American Innovation Program at the Center for Strategic and International Studies, where he also serves as a senior fellow. Previously, he directed the Innovation Policy Forum at the National Academies of Sciences Engineering and Medicine. And Dr. Shivakumar holds a bachelor's degree from Carleton University, and a PhD in economics from George Mason University. And thank you very much for joining us today. So, we'll start with our testimonies. And in front of you, you will have a system of lights. Please press ``speak'' to speak, and that green means you're good. But once you hit that yellow button, you've got a minute left and we need to start wrapping up. And when we hit red, your time will be expired. So, Ms. de La Bruyere, we are going to start with you. You are recognized for five minutes. STATEMENT OF MS. EMILY DE LA BRUYERE, SENIOR FELLOW, FOUNDATION FOR DEFENSE OF DEMOCRACIES, SEWICKLEY, PENNSYLVANIA Ms. de La Bruyere. Thank you for the opportunity to testify today. China is winning the technological competition against the United States. China is not winning by out-innovating the U.S. Beijing isn't besting us at the game we assume to be underfoot. Rather, the Chinese Communist Party is winning because they aren't racing. The CCP weaponizes the interdependence of the global system in order to acquire advanced technologies at low cost and low risk. Beijing then focuses its resources on the areas where it sees actual competitive advantage. First, applying those technologies including to scale global systems and control international supply chains. And second, placing targeted risk- adjusted bets in potentially paradigm-shifting domains where first mover advantage actually matters. The strategy is working and it is asymmetric. It plays perfectly to China's strengths, including of scale, centralization, and industrial capacity. China's strategy also converts core U.S. characteristics into weaknesses. Beijing is able to benefit from U.S. innovation and investment. China preys on the openness of the American system for access and its decentralization for control. The risks and the threats of this approach are particularly acute today because, and this is core to the CCP's approach, the contemporary tech revolution is transforming the global order. Modern advances in technology are creating new markets, new methods of production, and new forms of control. If China can win the tech contest, it can capture production markets and control. Avoiding as much requires first understanding Beijing strategic orientation and second fighting back. That orientation begins with access to technology from the academic and especially from the commercial sectors. To access the commercial technology, Beijing leverages illicit means like industrial espionage and in China forced data localization. But Beijing, also and in particular, takes advantage of particular entirely illicit means. Beijing is manipulating not attacking the international business environment. Government- backed and government-guided Chinese entities go out into the international system to obtain technology through acquisitions, to ventures, direct and indirect investment, talent programs, and personnel recruitment, and even lawsuits. Those Chinese entities benefit from government support and guidance, freeing them from market forces and therefore allowing them to redeem strategic value from counterparts who are bound by economic logics. Alongside those go out vectors of tech acquisition. Beijing deploys a parallel and compounding bring-in program, leveraging the appeal of the Chinese market and Chinese industrial base to attract foreign IP, research and development, data, personnel, even capital. This strategy and positioning put all U.S. technology at risk. They ensure that the U.S. approach to tech development and leadership is not only a losing one, but in fact, fuels America's strategic adversary. America needs to change its game. First, the U.S. government needs to shift from protecting American technology from China to defending the U.S. market from China. Washington needs to impose real and rigorous restrictions on Chinese commercial entities operating in the United States or seeking to access the U.S. market. Such restrictions should cover direct and indirect investment, joint ventures, including minority stakes, and tech licensing. They should also cover construction and deployment of information systems, components, and software. Those restrictions should adopt presumptions of denial. They should also adopt definitions of Chinese entities that are robust enough that China cannot circumvent them through localization and shell companies. Second, the U.S. needs to activate its private sector to stop forfeiting critical U.S. resources to China and to start investing in the actual competition at hand. The private sector should have to choose between the U.S. and Chinese markets. Businesses that localize data research and development production in China, invest in Chinese entities, or maintain tech licensing deals with Chinese entities should not be eligible for federal procurement, defense industrial-based procurement, federal tax credits or other incentives. Those are all sticks. At the same time, the U.S. government needs to ensure that those companies that are opting for America and for the American market can invest, produce, and partner profitably in the United States. To do so, Washington needs to provide the infrastructure necessary for production, including through expanded provision of domestic energy and upstream resources, a favorable regulatory environment, and a skilled workforce. We have the chance to reclaim our core strengths and reset the playing field. America's market can serve America's interests if we protect it from China. American innovation can fuel us not our adversary if we direct it at the actual competitive arena. And our agility as a country can throw the deliberate, slow, centralized PRC system on its heels if we take the initiative. But all of that has to happen now. Thank you. [The prepared statement of Ms. de La Bruyere follows.] [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] Senator Hawley [presiding]. Thank you very much. Dr. Shivakumar, you are recognized for five minutes of testimony. The floor is yours. STATEMENT OF DR. SUJAI SHIVAKUMAR, SENIOR FELLOW, CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES, WASHINGTON, DC Dr. Shivakumar. Thank you, Senator Hawley, and distinguished members of the committee. I'm honored to share my views on this important topic and concerning our nation's innovation strategy. Just a quick note that CSIS is a bipartisan non-profit policy research organization dedicated to advancing practical ideas to address the world's challenges with the core mission to define the future of natural security. Please note that CSIS does not take any institutional policy positions, so the views represented here are my own. So, as we begin our discussion today, I think it's important to keep in mind that the global strategic environment has changed fundamentally. In fact, the world's innovation landscape today is multipolar. Others can quickly grab U.S. ideas and run with them, as my colleague has just pointed out. Competitors and rivals are also rapidly developing their own ideas and have invested in scaling them up. So, there's an important fact here; that we need to pick up our own pace in this global race. U.S. innovation leadership depends critically on our own country's ability to invest in research, make new discoveries, and then bring those to the market faster and at competitive cost. So, when competitive technologies aren't developed or can't reach scale because commercialization tools are underfunded, others will seek seize the opportunity. So, this means that we must reinforce key elements of our own innovation ecosystem. A key point that I want to emphasize is that U.S. innovation and by extension, our competitiveness and national security, depends on sustained and substantial support to our federal R&D agencies and research institutions. Importantly, it also depends on our ability to convert the results of this research into products to meet the needs of the American people. While the U.S. remains an innovation powerhouse, it produces more IP than through our research universities and corporations than any other country in the world. That edge is shrinking, and not least because our competitors and adversaries are advancing proposed cuts to our leading science agencies and research universities further erode that advantage. In the past, there were few places where innovation inventions could be developed and, and rapidly commercialized that reality has changed. So, to maintain our competitive leadership and national security, we must surge investments into our domestic R&D technology, including scale up workforce development, advanced manufacturing, to ensure that the results of our research advantages U.S. security and everyday Americans. My second key point is to affirm that the SBIR program is a proven natural security asset, and that we must continue to strategically support and expand it. As someone who's directed multiple independent assessments of SBIR at the National Academies of Science and Engineering, I confirm that the program is sound in concept and effective in practice. It enables start startups and small businesses to bridge the valley of death, which is the gap between research or proof of concept and the commercial production. It allows agencies like DOD to procure cutting edge innovations far faster than conventional programs that the Pentagon has. And SBIR has catalyzed the success of companies like Qualcomm, which have transformed our daily communications, and today continues to support breakthrough technologies, including drones, next generation, reconnaissance, quantum technologies, and missile propellants. At a time of intensifying technological competition, SBIR awards contribute directly to our economic growth, technological leadership, and capabilities. Our adversaries and competitors have recognized the value of SBIR program for its proven outcomes and the technological leadership it has helped secure. As Chairman Ernst pointed out in her remarks, the DOD's internal report in 2021, documented efforts by state-sponsored Chinese firms targeting DOD's SBIR companies and that merits serious attention. But let's be clear, if a competitor is stealing your playbook, it's probably because your playbook works. To be sure, steps should be taken to defend small companies against cyberattacks and foreign efforts to acquire ownership or to steal technology. But SBIR supports small businesses that often lack the tools to protect themselves from this espionage, and they're often without in-house counsel, threat intelligence, or cybersecurity teams. So, we need to provide active support for their cybersecurity awareness and defense. In other words, our response should not be shut down or weaken the successful program, but in fact, to fortify it. For SBIR to work, it needs to be safe, stable and substantial and yet flexible. First, it needs long periods of reauthorization. A strong program can't thrive in a climate of fiscal and legislative uncertainty. Secondly, we should strive to avoid overregulation. Micro-level legislative requirements on the program tend to be less effective than coordination and encouragement at the program manager level. And third, we need to strengthen and encourage the transition to commercialization. SBIR companies help companies cross the valley of death in phase 1 and phase 2, but in many cases, that bridge ends halfway across the valley of death. There are different parts to add an additional arch, including perhaps an active agency-financed phase 3, particularly for agencies that don't have a procurement function. So, in conclusion, I just want to say that innovation without commercialization is in fact a lost opportunity, and in a world of accelerating competition, potential gifts to our adversaries. SBIR works, but it must be buttressed with cybersecurity support, flexible flow on funding to facilitate commercialization and programmatic stability. Most importantly, it must remain embedded within a strong ecosystem, one that is supported by sustained and substantial investment in our federal R&D agencies and research institutions. Thank you very much, and I look forward to your questions. [The prepared statement of Dr. Shivakumar follows.] [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] Senator Hawley. Thank you very much. Dr. Hannas, you're recognized for five minutes for your testimony. The floor is yours. STATEMENT OF DR. WILLIAM HANNAS, LEAD ANALYST AND RESEARCH PROFESSOR, GEORGETOWN UNIVERSITY'S CENTER FOR SECURITY AND EMERGING TECHNOLOGY, RESTON, VIRGINIA Dr. Hannas. Thank you, Chair, Ranking Member Markey, distinguished members of the committee and staff. I'm grateful for the opportunity to testify on this topic. I'm a founding member of Georgetown University's Center for Security and Emerging Technology, where I track Chinese threats, technology threats posed by China. Prior to that, I was a senior intelligence service officer at CIA, managing the same portfolio. These efforts led to two books on Chinese industrial espionage in 2013 and 2021 into other studies on the topic. My interest in Chinese foreign tech transfer began as a graduate student preparing a thesis on China's cultural predisposition for holistic thought, which has served China well in practical terms, but hinders progress in basic science that has plagued China's since antiquity. I bring this up to emphasize that China's reliance on foreign ideas has historical roots not easily overcome. Another factor that drew me to the topic was the discovery that China treats foreign technology acquisition as an academic discipline. Keji qingbao, literally ``S&T Intelligence'', on a par with other scientific fields, replete with degree programs, how-to manuals, academic journals, and career positions supported by legislation and an army, some 100,000 S&T intelligence operatives. That's the term they use. So, the notion that China's informal transfer of foreign technology is done by opportunistic individuals is pure myth. This is a state-backed soup-to-nuts system that has been running at the central government's direction since the 1950s and is not abating, even as China's indigenous accomplishments grow. It's impossible to condense volumes of research into five minutes, but here are the basics. China uses three types of transfer practices; legal, illegal, and extra-legal. Illegal transfers run from insider operations, patent infringement, reverse engineering, to the hacking and clandestine exploits we read about in the press. These tech espionage cases are so numerous that the ODNI issues two annual reports, one for China and one for the rest of the world. Legal transfers done through China's U.S.-based subsidiaries, startup accelerators, targeted hires, direct and indirect investment, mergers and acquisitions, and tech-for- trade agreements are easy to spot, but hard to counter because U.S. participants and oversight officials often confuse legal with ``in the U.S. interest.'' Finally, there are a dozen categories of extra-legal venues that China uses, including front organizations for deniability, paid short-term visits to state debriefing centers, overseas technical support, guilds, online recruiting, and of course, China's human talent recruitment programs. In a 2023 book on artificial intelligence, we gave examples of U.S. firms in China including Microsoft, Intel, and IBM, working with China on AI development and credited by the Chinese alumni of the programs as critical to China's success. In the same book we named 10 types of venues used to effect transfers from foreign academics such as school-to-school ``partnerships'', co-authorship, and a practice called ``using foreigners to draw in foreigners''. These practices threaten U.S. businesses large and small, the lateral especially vulnerable, owing to a scarcity of research funds and investment capital, shrinking talent pools, fewer opportunities to commercialize breakthroughs, inadequate due diligence, and limited venues for redress. So, what can be done? First, we must appreciate that the reason this is a problem at all is because our lead has shrunk to the point where theft matters. Whereas before we're so far ahead, it didn't matter. Rebuilding U.S. research, entrepreneurship, and productive capacity independently of whatever China is doing or stealing is the only sure way out. Meanwhile, we propose five common sense measures; Data on China's transfer practices should be gathered and shared with U.S. firms and academic compliance offices. Two, clear guidelines of what is legally permissible should be communicated to foreign actors contemplating research in the United States and the U.S. persons doing research, doing business in China. Three, members of China's overseas support guilds, talent recruitment programs, lobbying groups, and other united front operatives should register as foreign agents. Four, recipients of U.S. government funding should report contacts with or travel to China to minimize China's ability to benefit from U.S. federal and state level investment. Finally, there are opportunities for U.S. authorities to stand China's transfer apparatus on its head. By seeding these venues with persons disposed to support U.S. interests. We're past the point where this problem can be ignored. The gap between tech breakthroughs and consequences is measured now in weeks, which puts a premium on keeping what we invent. Thank you for this opportunity to address this issue. [The prepared statement of Dr. Hannas follows.] [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] Chair [presiding]. Thank you very much for your testimony. And we will now go into our question answer period, and each member will have five minutes. I now recognize myself for five minutes of questions, and Ms. de La Bruyere, let's start with you. I was a proud leader in the creation of a new foreign ties due diligence process for SBIR in 2022. My INNOVATE Act would create a clear and consistent definition of foreign risk to improve agency's analysis of adversarial threats. Which methods does China most commonly use to exploit technology of innovative startups, and how can we best restrict the flow of those taxpayer dollars to compromised entities? Ms. de La Bruyere. Thank you for that question. I obviously can't answer without first prefacing that China has an immense arsenal and it's adaptive. So, when we put up protections, China tends to find or try to find ways around them. That said, common methods include first investment, including both directly via Chinese companies and funds, and indirectly as, for example, limited partners in U.S. funds. Second, China uses both customer and supply relationships as well as the information-sharing at those create, and personnel including as have been mentioned; talent programs, talent poaching, and embedding of personnel. Protecting against this requires top-down measures from Washington, and also, expectations put on companies that are receiving federal funding. From the top down, U.S. restrictions on Chinese investment and presence in the U.S. should be strengthened. For instance, CFIUS should be strengthened to respond to China's indirect investment methods as well as direct directed ones. But also, federal funding mechanisms like the SBIR program should include due diligence requirements. And those due diligence requirements have to be best-in-class, and they have to be updated for the realities of China's adaptive and indirect ways or means. It's not enough to say what's first-level ownership or what are direct investments coming into a funded entity. It's also not enough to say just what are its first-tier customers. Due diligence has to look at the indirect investments. It has to look for instance at customer as well as tiered-down suppliers. And due diligence processes have to be adaptive or proactive so that they're looking at what China's going to be doing next, not what it's already doing. These should be the case. They're largely not in the due diligence approaches and ecosystems that exist. So, that has to change. And then also from the bottom up, companies that are receiving federal funding should be expected to be doing and refreshing their due diligence throughout their lifespans. So, that should include looking at who they're taking money for and really vetting that for Chinese ties, who they're supplying to, who their customers are, who their partners are. There should be no entity whether a research university or a two-person startup in a garage that's getting U.S. federal funding that's also partnering with Chinese entities. And that should be fundamental and the penalties should include clawbacks because there has to be an actual risk in there. Chair. No, thank you. And that was very good. A lot of solutions just in that one answer, so I appreciate that. Dr. Hannas, in your testimony you discuss how U.S. oversight officials often confuse legal with ``in the U.S. interest.'' Can you elaborate further on how to get our federal officials to stop awarding taxpayer-funded grants and contracts to companies that have clear ties to CCP espionage? Dr. Hannas. Simply said, but hard to implement. You need data and access to the data. Let me share a war story. Some years ago, I was part of a team reviewing bids of a large U.S. government contract. We had necked down some 200 bidders to a dozen and rank-ordered them. And by a pure chance, I noticed that one of the one of the companies which was in the top rank was pitching a professor at a U.S. engineering college, whom I remembered as a China talent program member who wrote software for China's bio industry. So, we drew the money line just above that company. This is not the way to operate. The event should have happened by design, not luck. It's entirely possible for the U.S. government to build detailed lists of persons and venues affiliated with China's technology transfer programs against which grant proposals can be vetted. In fact, we spearheaded a pilot a few years ago that enjoyed some success, but access was restricted. It was limited, which didn't do corporate America much good. Chair. And thank you for that. It's a clear demonstration of why my INNOVATE Act strengthens the denial authority and provides clarity to our program managers that they can't move forward with awards if there are clear threats out there. So, I really do appreciate it. We will go next to a Ranking Member Markey for his questions. Senator Markey. Thank you, Madam Chair. Dr. Shivakumar, as you know, the Small Business Innovation Research and the Small Business Technology Transfer programs will expire in just over two months. And these programs have played an essential role in driving our country's innovation, resulting in at least 70,000 patents in 700 public companies. Since its inception in 1982, the program has resulted in more than 207,000 awards, totaling more than $72 billion, and you are one of the few researchers. Was that extensive analysis of these programs? So, could you speak, Doctor, to how multiple award winners are important to the growth of certain industries, and could you provide an example of a technology that would not exist without multiple award winners? Dr. Shivakumar. Certainly. Well, I was just last month in Colorado looking at the emergence of a quantum innovation cluster in the Mountain West region. There are a number of SBIR companies among those, and they are a limited number. So, if you think about the need to actually grow our quantum industry, and if you think of the particular solicitations, there are only going to be a limited number of these companies that can respond to any particular solicitation. So, the idea of those companies will build--well, by nature need to garner multiple awards in order to build scale and to grow the industry in that region. So, it's not just there are concerns about whether there are, is there is a problem with multiple award winners, people coming you know, gaming the system. There are cases to be made where multiple award winners are actually important to our national security, if we need to build up our quantum industry, for example. On the other hand, we have program managers at the various agencies who are best positioned to actually monitor any abuse of the program by gaming the system to get multiple awards. My recommendation is for the Senate or the Congress to sort of manage the program from here, but provide the program managers the resources and the confidence to actually manage their programs. If there are problems, let them document the award. If there are---- Senator Markey. Let me ask. Could you speak to the impact of the 2022 due diligence program in protecting our SBIR and STTR program? Dr. Shivakumar. So, I think there is obviously an important aspect in protecting our IP, but there's also the consideration that it's a global race now in terms of innovation. There are multiple countries in the world, including China, that have strong innovation systems. And as you know, the old football saying, you can't win purely on defense. You need a very strong offense, which means that we need to supercharge our innovation system, by making sure that our universities churn out, our research institutions churn out new ideas by making sure that programs like SBIR take those ideas and bring them into businesses, build prototypes, get them ready for the market. And then to, scale those technologies further up so that we can be competitive internationally while also you know, creating new opportunities for Americans. So, yes, we need to defend, but I think we need to look at both sides of that equation as well. We need to have a strong offense in terms of a very vibrant innovation system. Senator Markey. Yes. And that strong offense would be not cutting the National Institutes of Health, not cutting investment in batteries and solar, and not cutting investment in the National Science Foundation, investing in our young people to compete. Here's a headline from just last week, ``China puts new restrictions on EV battery manufacturing technology.'' Now that they've made the breakthrough, now that there are companies like BYD, build your dreams, way ahead of Ford and General Motors, and way ahead of Tesla, they're now going to put restrictions on the transfer of any of their battery technology around the world. Then they invited us in, but their condition was we have to share our technology with them. Now that they're sprinting ahead, they're going to put restrictions on. So, it looks like they were playing us for Uncle Sucker the whole way. And we just have to be realistic about it. But the way to respond is not to cut our research in these critical areas. There's going to be 20 million all electric vehicles sold around the world this year. We only sell 17 million total vehicles in the United States each year. And so, we're seeding the future. Basically, what China is doing is putting up the walls to protect, not just against us, but anyone else now being able to compete effectively with them in the marketplace. And we just have to be ruthlessly realistic about that reality. Thank you, Madam Chair. Chair. Okay. Thank you, Ranking Member. And Senator Curtis, you're recognized for five minutes. Senator Curtis. Thank you, Madam Chair. I'm really proud to represent Utah. Like some of my colleagues, Utah represents 99 percent small businesses. And this is just a really important committee and topic, it's the lifeblood of our state. Utah's a major entrepreneurial hub for innovation as well. A lot of our businesses have seen their intellectually property stolen, and Chinese entities frequently copycat their products. They see them on places like TEMU and other things like that. I'm actually convinced that our small businesses have a disproportionate burden here because they don't have compliance officers, they don't have layers of lawyers and accountants. So, I guess my question for all three of you is, how vulnerable are our startups specifically to this Chinese espionage and are there specific industries that are more at risk? Please. Ms. de La Bruyere. The short answer is highly vulnerable, and not only because of the resource constraints that small businesses face, but also because of the dearth of resource constraints that Chinese entities face. The way Beijing positions in the international commercial ecosystem is to state-led enterprise driven approach, where Chinese agents' companies go out, they have state backing and direction, and that means that they're not bound by market forces. Which lets them reap strategic advantage off of entities that are bound by economic logics, especially those like small businesses that have serious resource constraints. And ways Beijing does this include, targeting distress companies, companies on the verge of or after bankruptcy, ones that really need to raise investment rounds and will take investment from anyone that's willing to give them money, in short that have strategic value, but aren't necessarily on a commercial trajectory, or one that gives them the freedom to choose between long-term strategic interests for them or the country and Beijing. And that's a massive difficulty, and you can't solve that without having restrictions on China's role and the role of Chinese entities in the U.S. system. Senator Curtis. Thank you. Dr. Hannas. So, I made some notes on that point, and yes, indeed, they are especially vulnerable small businesses for a number of reasons. You know, one being the scarcity research funds and investment capital. So, it's not available here, so they look at China, even if they they're not looking at China, shrinking talent pools, plenty of talent available through China's diaspora community. But less and less, within the indigenous American population, fewer opportunities, and commercialized breakthroughs. That's big. They have discoveries, how do they bring it to market? Not easily done. And it was pointed out, inadequate due diligence. They don't have the wherewithal to determine, who are friendlies and who are not. And finally limited venues for redress. You discover something that you're an agreed party to an agreement, and what do you do about it? Very little you can do about it as a small business. So, yes, they are very vulnerable. Senator Curtis. The FBI said that China is ``the world's principal infringer of intellectual property,'' and that it uses laws and regulations to put foreign companies at a disadvantage and its own companies at an advantage. Earlier this year, I introduced the Combating China's Pilfering of Intellectual Property, CCP IP Act, which holds China accountable for stealing American ideas. This bill would enforce sanctions and visa restrictions on Chinese officials and citizens engaged in intellectual property. Can any of you walk us through how intellectual property threat, transfers into long-term economic or national security losses for the United States? Go ahead. Ms. de La Bruyere. I think to answer that question, you fundamentally go back to what China's trying to do with intellectual property. Beijing's not just developing cutting edge technology, Beijing is stealing cutting edge technology and then focusing on its application. So, the commercial and the industrial returns that come from that. And Beijing is like doing that for two primary objectives. One is to control international supply chains. If you control batteries, were mentioned, for instance, the global battery market, you control automobiles, and also you make sure that the U.S. depends on you, which gives you leverage in economic and geopolitical environments. And second, perhaps most importantly, offensively Beijing's working to build and to scale the global infrastructure for a new technological environment in information technology. For instance, a unified information network that collects all data and transmits all data. And if Beijing is able to do that, and it's directly applying technology to this end, then Beijing can control how markets work, how military work, how people perceive. Senator Curtis. Thank you. I'm sadly out of time. Appreciate your expertise, and I yield back. Chair. Senator Shaheen. Senator Shaheen. Thank you, Madam Chair. And thank you to each of our witnesses for your testimony today. I have to say, I agree with the premise that each of you have outlined about the threat that China poses to our innovation and the importance of the SBIR program, and reauthorizing it in ensuring that we continue to innovate. I just want to point out that last week, the minority on the Foreign Relations Committee issued a report on China that talks about the threat from China and the decisions that have been made in the first six months of this administration, that seed America's leadership in a whole range of issues. And one of the report's findings highlighted how America's withdrawal from international organizations, seeds influence to China, which in response, has increased its contributions and personnel across a whole range of international bodies. And by proposing a near zeroing out of U.S. contributions to international organizations like the World Intellectual Property Organization, WIPO, the administration risks allowing China to be the dominant voice and international discussions about the future of IP protections, including patents, copyrights, and trademarks. So, I would ask each of you how America's small businesses benefit from participation in international bodies like the World Intellectual Property Organization. One of my favorite statistics about small businesses, that they create 16 times more patents than large businesses. So, what happens around the IP protections that you all have outlined is critical. So why is it important that the United States participate in those kinds of bodies that provide those protections for our small businesses? Dr. Shivakumar. So, you know, there's interesting quote from Chinese leader who said that, the country that controls the standards and patents, controls the world. And they understand that very well, and they have a natural strategy, a 2035 strategy to be a world leader in setting the standards. If you think about standards, in many respects, they're like language. They set the grammar, they set the vocabulary, the idiom, and the country that sets, you know, is in control of the language, controls the dialogue, controls the thought, controls the innovation in the sphere. So, it's extremely important that the United States, which has long dominated the standard setting environment, the institutions, sort of wake up and reassert itself. It's sort of, we have been in the lead for so long, like the proverbial story or the rabbit and the hare, we have sort of taken a nap. And so, the relevant agencies need to be prodded, hopefully from here, and to sort of take a leadership and make sure that we are ably represented, that the people who are in these standard setting organizations are trained and that we take a much more active, proactive role in the IP. We have a very strong still in our innovation system research IP. We are an IP machine in many ways, but we need to also have standards you know, part of that equation to make sure that our ideas are dominant, and that we have that advantage of being the standard setters. Senator Shaheen. So, if we don't pay our dues to WIPO the end of this year, we run the risk of not being able to participate again. And what kind of a disadvantage does that put the United States businesses in, if that happens? Dr. Shivakumar. Well, if somebody else is writing the rules by which you have to play, that certainly puts you at a disadvantage. So, that's not a situation where you want to be. Senator Shaheen. Thank you. Yes. Ms. de La Bruyere. If I may add, I think one of the underestimated risks of China's approach is that Beijing has co-opted international organizations, including and especially standard setting organizations, intellectual property organizations. And Beijing does so with the benefits of its centralization and scale. That means that even an activated U.S. approach to those organizations doesn't have any hope. China floods the ITU with members who are paid, they've pre-decided what standards they're going to form, which means that just by engaging in these standards, in these organizations, the U.S. will be at a disadvantage. So, the hope that the U.S. can claim is by extracting China from a system that has manipulated and restoring its integrity, such that activities go in a way that follows their actual rules and intent. Senator Shaheen. But if we're not at the table, how are we going to extract China and how are we going to hope to compete, if we're not even there? Ms. de La Bruyere. We need to establish organizations that don't have China in them or find ways like---- Senator Shaheen. But again, how do we do that if we're not there to address the rules of those organizations and to establish that ability to make sure that China doesn't participate? Ms. de La Bruyere. You don't have to be part of an organization to launch a new one. Senator Shaheen. Are we in the process of doing that? Ms. de La Bruyere. I think that the most strategically significant move with international organizations the U.S. could make right now, would be to revoke China's permanent normal trade relations status. It's a world trade organization move, not a WIPO---- Senator Shaheen. I wouldn't disagree with that at all. I think that that is not a bad move. Ms. de La Bruyere. And then that could have trickle down effects throughout other organizations that Beijing has co- opted. Chair. Very good. Thank you. That'll be our next project. So, thank you. I recognize Senator Young for five minutes. Senator Young. Thank you, Chair. As chairman of the National Security Council on Emerging Biotechnology, I have dedicated a significant amount of effort on the topic of making sure that we have a vibrant small business sector that can commercialize the many innovations we make in this country. And one of the key recommendations we have in that report is the urgent need to mobilize the private sector by enhancing the reach and the effectiveness of the Small Business Innovation Research and Small Business Technology Transfer programs. These programs are essential for advancing early- stage innovation and scaling U.S. technologies. They are proven; they have been bipartisan but we think they certainly can be improved. Mr. Hannas, you've been closely involved with the NSCEB, thank you for your assistance. You helped us shape recommendations. From your perspective, how critical is it that we emphasize and incentivize the commercialization of emerging technologies? Just touch again on that, but as importantly, how much your recommendation to make China's united front operatives register as foreign agents help advance that cause? Dr. Hannas. Yes, so the first point. I mean, this is where China excels in commercializing technology. They never set the world on fire in coming up with abstract indigenous theoretical discoveries. But what they do exceptionally well is commercialize what anybody in the world finds. We seem to have exported or lost that ability to commercialize. And there was a time when we could get along okay with royalties from patents, for inventions that we created. But those days are gone, need to commercialize. And here we might draw a lesson for once from China, something they're doing. I was kind of shocked to discovered a few years ago that they have what are called commercialization centers, which are anything from a storefront with two people in it, two acres wide, and stories tall complexes, that exist solely for the purpose of commercializing technology, both foreign and indigenous. They don't discriminate. If it's technology, they'll commercialize getting it to market and or weaponizing it, before anybody else does. I don't know that we have anything like that. And I think we might be able to learn a lesson from that. And your second question, Senator? Senator Young. If you could very briefly, because I have limited time, but just touch on your recommendation pertaining to making China's united front operatives register as foreign agents. Dr. Hannas. Well, clearly, they are. No one's held their feet to the fire to this extent. And again, it goes back to data. We need to understand what groups of people are involved. We already do understand that at a certain level, but we need to get this information into a database where it's scrutinized and made available to other people who can make these analytic judgements, and execute these decisions that we make in determining who are actually China's unpaid actors, China's influence operators. It's not done; it's hit and miss. Senator Young. You know, it seems to me a sports analogy is applicable here, a good defense is also a good offense, right? In this case, if we cut down on the theft of intellectual property, we leave it to our own market, our own investors, and entrepreneurs. If we up our game with respect to commercialization, to deploy whatever business model they think appropriate, to take advantage of those breakthroughs, creates jobs and prosperity and helps our national security. So, I think the two are very much linked. Ms. de La Bruyere, I'm sorry if I butchered your name. How can we better ensure sustained U.S. leadership in the development and deployment of emerging tech through your proposal to prohibit certain businesses from eligibility for federal procurement, if they run afoul of any of the prescriptions that you suggest; data research, procurement, localization, investment in Chinese entities, how would that work? Ms. de La Bruyere. That starts with defense, right? Part of that is then we're trying to defend our technology from China's access. Senator Young. Yes. Ms. de La Bruyere. Perhaps more important than that, because fundamentally defensible only works so well against China, is that moves like that, send a message to the private sector, and they tell the private sector that you have to make a choice between the U.S. market and between China. And also, that you can profit from investing in America and investment in the U.S. encountering of China can be a profitable thesis. The U.S.' greatest strength is our private sector, but that has to be what's activated for the contest against China. We can't just have the government impose restrictions and think that that will work. So moves that force a choice, and make U.S government support contingent on a competitive approach to China, send a signal to the private sector. Senator Young. Thank you. I'm out of time. Dr. Shivakumar, good to see you. I've enjoyed our work together. Chair. Chair. Yes, thank you, Senator Young. Senator Justice, you're recognized. Senator Justice. Thank you, Madam Chair, and Ranking Member, and all these wonderful witnesses. And I'm not going to attempt to butcher your last names, there's no way. So, for me, we're going to go with Emily, Doc 1, Doc 2. Okay. So, let me just start off by making a little bit of a statement, because I've got a lot of white hair. I'm a new kid on the block; I came here for the right reasons and period. I don't want anything. I don't want a thing in the world for me. But with all that being said, I can't for the life of me understand why all the smarts around this table, all the smarts here, all the smarts back there, why we can't just realize where we are. I mean, we have known forever and a day what China's doing, and we haven't done anything about it. And America believes that no matter what in the world happens, and I'm a believer too, no matter what in the world happens, it's all going to be great. And we can go to Wendy's and get Baby Dog chicken nuggets this afternoon, and we know we can't. But now, just think about this just for a second, and let me just take you back just in time. Jimmy Carter was the President. We'd given away the Panama Canal, we had interest rates and inflation rates at levels that nobody could ever fathom. We had gasoline lines; we had a hundred hostages in Iran, the Soviet Union was running so strong, it was unbelievable. And to be perfectly honest, a lot of us were afraid. At that point in time, who could have ever dreamed that the Soviet Union could stumble? And then all of a sudden, we elected Ronald Reagan. And just in a very, very, very short period, almost no time, Ronald Reagan was standing in front of the Berlin Wall saying, Gorbachev, tear down this wall, and the Soviet Union collapsed. Why do we not believe and move with the light speed that we should be moving with, that it could happen to us. And it can. We're right on the cusp right now of needing energy like you can imagine. Absolutely, we're going to have to decide between homes and industry, if we don't really get moving now. So why in the world does the smarts of this room that is unbelievable, not solve the problem? We've got to solve the problem. I mean, for God's sakes of living, I mean, if in Madam Chairman's home state, if people are out digging up seeds, and stealing our technology of how we grow these phenomenal crops that yield beyond belief, and I'm a farmer too, you know, what will they not do? What in the world will they not do? So, all I can say to you is just this, to the small business folks, and my only question would be just this that's already been asked 14 times, how do you protect them? They don't have a host of accountants or lawyers or whatever it may be, or advisors. How do you protect them? And literally, for all of us, a lot of y'all are really young and don't have white hair, but it'll probably happen to you sometime. I was skinny and had brown hair for a long time, and now look. But anyway, all that being said, absolutely, we have got to solve the problem. We got to solve the problem right now. How do you protect the small businesses? Let's go with Emily, Doc 1, Doc 2, go very quickly. I've only got a minute, and I've said exactly how I feel. But at the end of the day, come on guys, come on. All of us got to pull the rope together. We have everything at stake. It's not time to be Democrats and Republicans. It's time for all of us to pull this rope together. Emily, please. Ms. de La Bruyere. We remove China from our market, and we incentivize companies not just to develop research but to produce. Senator Justice. Doc 1. Dr. Shivakumar. SBIR is a huge asset that have to accelerate technologies using our small businesses. We need to arm them with the wherewithal, the resources to inoculate themselves and to be aware so that they're not susceptible to this sort of theft. Senator Justice. Doc 2. Dr. Hannas. Level the playing field, so China can't continue to do what it has been doing. Senator Justice. A hundred percent right. Madam Chair, I'd defer my three, five seconds. Oh, I'm overtime. [Laughter.] Chair. Thank you, Senator Justice. And thanks for bringing up the Chinese theft of seeds in Iowa. That happened in 2013, I believe, and they were sentenced in 2016. But yes, it does happen. They steal our intellectual property and reverse engineer. So, we will next go to Senator Husted for five minutes. Thank you. Senator Husted. Thank you, Madam Chair. Thanks to the witnesses for joining us today. Complicated issue it seems in listening to you, and from the work that I've done in my life, it seems like we've got a situation where our freedom is being used against us. We allow Chinese students to study in our universities, not many times, but sometimes to our detriment, stealing intellectual property, our ideas, outright espionage. Anytime a small business sells into the Chinese market, I don't know how many times I've talked to a small business, said look, I was selling it. Next thing I know they're selling it. They stole my IP. I have no recourse in their courts. They have recourse though in our courts. We give their businesses the same protections we give our businesses, but yet, that's not reciprocated. Not to mention some of their advances clearly have also come from stealing technologies from other nations, from other innovations that go there. And I know in talking to small businesses since the tariff issue has come up, that they say -- well a lot of times they say, well, I don't necessarily like them, however, it's about time somebody stands up and protects me from what's going on when I try to sell into China, and what they sell into our country and other countries. I'll ask each of you to comment on what recommendations would you make to the Trump administration as they're looking at the issue of trade with China, and how can we use our trade relationship or the bilateral conversations that are happening, to address some of the issues you've discussed today? Dr. Hannas, we can start with you and go down the line. Dr. Hannas. Again, my apologies. I'm not good at solutions. But there is one point that needs to be brought up that is germane I think to your question, and we didn't touch on it enough before. This is not solely a U.S. problem. You know, China does not discriminate among the countries that it exploits. Our book on Chinese industrial espionage, which it was translated in two languages, guess which two? Japanese and Korean. Because they're suffering the same problems we are. So, one of the things we can do is align ourselves with our allies who are suffering from the same depredations and come up with a common front against the problem. That would be my major recommendation. Senator Husted. Okay. Thank you. Dr. Shivakumar. Challenge system research, a fantastic entrepreneurial culture, but the scale up part of our innovation system infrastructure has eroded over a number of years. We need to rebuild that so that we are the ones who are first and foremost absorbing the IP that's coming out of our research universities faster than anybody else in the world. Senator Husted. And what do you think the barriers are to that? Because we have a lot of capital in this country. What is the barrier, why aren't we scaling it up? Dr. Shivakumar. Well, it's a sort of--we have basically hollowed out our manufacturing sector. So as a result, our ecosystem is incomplete. The Chinese have large state-owned enterprises. They have deep pockets. They're able to take ideas and scale them up. And we are kind of weak in that area. So, what we need to do is actually rebuild our innovation system so that it's the most competitive in the world. Go back to when it was. Senator Husted. It's very capital intensive to established. Dr. Shivakumar. It's capital intensive. It requires a lot of coordination across. It requires a strong--it's a multifaceted innovation system. It has worker training aspects to it; it has capital markets aspect to it. It has research and development aspects to it. All of these parts of the innovation system have to all work together independently as well as connect with each other. In fact, one of the advantages of the SBIR program is actually, it takes ideas that may be formed at a university lab, but the venture capitalist doesn't know whether it's a great idea. And so, by creating you know, a two-phase validation of the commercial potential and the technological potential of the technology, it basically flags to venture capitalists, our deep capital markets, that this is an idea that you need to invest in that helps to bring the technology partway across---- Senator Husted. Well, our financial systems like sherbets, not speculative well---- Dr. Shivakumar. Well, the financial system, it's a market. And like any market, it works well when there's lots more information. And this is what SBIR does. Senator Husted. Give chance for our last guest. Ms. de La Bruyere. I'll be sure on the trade front; we need to stop assuming that China's going to play by the rules or will ever compromise. And we should levy significantly higher tariffs on China. We should encourage our allies and partners to do the same, but with a coherent message that says that the international free trade system works. We should all be part of it, but not let China abuse it. And then we should accept that a message to the American people, that all this will come at a cost in the short term, but that cost is far more palatable than the long-term cost of not defending against China's manipulation. Senator Husted. So, thank you. And Madam Chair, you know, the three things that I heard from the answer: work with our partners, Japan, Korea, others who are experiencing the same problem, help Made in America work by reestablishing our manufacturing base in this country, and use tariffs against China as a tool to help get this accomplished. Thank you very much. Chair. Yes, thank you. I think this has been a very good hearing and a lot of good suggestions coming from our witnesses as well. So, I am grateful for the recent positive coverage that my INNOVATE Act has gotten from a number of people, including from the CSIS scholars, including provisions to draw in new entrants and focus on SBIR funding on companies that successfully scale innovations to market for private or government end users. And I ask unanimous consent to enter into the record an article by Phillip Singerman, senior advisor with Renewing American Innovation at CSIS. Not my favorite picture, but we'll have that entered into the record. Chair. So, without objection, so ordered. And Ranking Member Markey, did you have closing comments? Senator Markey. Well, if I may, I just have a couple of more questions. If I may. Chair. Yes, you may. Five minutes. Senator Markey. Thank you. As I mentioned in my opening statement, President Trump has single-handedly decimated our innovation ecosystem. As one professor has noted, over the last few months, an elaborate plan to ensure that China prevails in our global economic competition has taken shape. The plan's chief architects however are not China's leaders. They are U.S. politicians. And the professor goes on to say, ``The Trump administration's cuts to federal agencies are undermining the United States' ability to innovate. Hostile immigration policies are making it harder for U.S. firms, industries, universities, to attract the best ideas and talents. Wild threats of tariffs and restrictions on foreign supply chains are terrifying investors. President Trump has created the perfect storm to destroy our competitive edge.'' So, Dr. Shivakumar, how will gutting our innovation ecosystem benefit China? Dr. Shivakumar. Well, it'll benefit China by taking us out of the race, clearly. But I think what we need to do is to actually supercharge our innovation system by reinforcing all the things that do work and fixing the things that don't. There are a number of connection points. And you know, our research system is something that we have been investing in for decades now, and it's a legacy system, and it requires reform, but at the same time, we reform it, you don't destroy it. It's an important part facet of our innovation system. It requires care and renovation and resources. Senator Markey. Yeah. So, over the Boston Public Library, it says ``The education of its people is the best defense of a nation.'' And that's been a bipartisan agreement, the Democrats and Republicans have had over generations, that it benefits our national security, it benefits our innovation culture. And in 1957, President Eisenhower enacted the National Defense Education Act. Sputnik was up in the air giving us an electronic finger from outer space. You are behind, you are behind, we're ahead of you. So, I went to college on a National Defense Student Loan, as did millions of other kids. We got to get in this race, we got to educate people because President Eisenhower recognized that the only way the United States was going to win this space race and protect our national security, was to invest in education, invest in those institutions, provide financial assistance to students. Now, in 2025, President Trump is doing the exact opposite; taking a sledgehammer to our world-renowned innovation ecosystem, dismantling our education system, and undermining America's competitive edge. And these impacts will be felt for generations to come. As one researcher said, if this continues, we are going to lose a generation of scientists. So, Dr. Shivakumar, what impact will President Trump's attacks have on American innovation, on National Security, our ability to attract the best and the brightest? Dr. Shivakumar. Well, I think you have described what the impacts will be, so I would agree with you. Our innovation system is tightly coupled with our research and development system and if you undermine that research and development part of our ecosystem, you slow down all the other parts of it as well. So, this is going to be a long-lasting negative impact. In fact, the proposed cuts to NSF and so forth, do take place. But this is what the President has proposed. I think it's for the President to propose, for Congress to dispose. So, I'm hopeful. Senator Markey. So, I've been in Congress for a while. I did not vote for most favored nation status for China. I was always very suspicious of them, especially after I went to China and I could see how they were stealing our intellectual property. When in the year 2000, there was a vote on making it permanent normal trade relations, there's nothing normal about trade relations with China. I voted no each time. But there was a bipartisan consensus, Democrat and Republican Presidents, Democrat and Republican leaders in the House and Senate. I was in the vast minority saying, no, we're going to be handing over our intellectual property. But they wanted to play, they were smart people thinking big strategic cards. They wanted to play the China card. And we went to ultimately turn over the card, it was a deuce. We didn't get anything in return. They didn't help us strategically; they just helped themselves economically. And now that they have the lead, they're putting up barriers. They have a battery that can recharge for five minutes and the car goes 400 miles. They cannot allow that to come to the United States for manufacturing, because they are now going to actually finish off this plan, which they had to take advantage of us. And then in turn have us not be able to compete with them on all of these key innovation technologies. That's why SBIR is so important. That's why all of the investment that we make in innovation and R&D is just so critical. And we are just unfortunately, increasingly, just leaving the playing field. And China, I'm sure is in a state of shock that we're doing it, not receiving anything in return from the Chinese as a reciprocal concession that is made to us. Okay. I thank you, Madam Chair. I just think this is such an important area for all of us to be able to focus on. Chair. Thank you, Ranking Member Markey. And thank you to our witnesses for your insight today to inform this discussion. Obviously, we all care very, very much about this issue. Our response to China's targeted exploitation of American innovators is of critical importance for America's competitiveness in the years to come. To maintain our edge, we have to do two things: Ensure taxpayer dollars are invested in the best and the brightest innovators with a plan to scale ideas from lab to market or to our war fighters. That's very important. And number two, eliminate loopholes by which CCP compromised firms gain funding. And I do want to be very clear here; there is a difference between companies who have won a handful of SBIR awards versus SBIR mills with hundreds of awards, over 40 years in the program. While it is a positive step that we have the foreign ties due diligence program in place, this data has revealed a concerning reality. 6 of the 25 largest recipients of SBIR awards at the Department of Defense have clear links to China. And still received nearly $180 million from the Pentagon in 2023 and 2024. And that was after the implementation of foreign ties due diligence. Rather than focus on funding on a select, very select, few well connected companies who pursue joint ventures and other business ventures with China, my INNOVATE Act would target funding on firms looking to build and commercialize technology here, for the benefit of Americans. I will continue to shine a light on this issue and work towards reforms. And with that, I will remind you---- Senator Markey. If I may---- Chair. You had five minutes, Ranking Member Markey. And I would also ask that if anybody would like to take a look at the information, my report is on our Senate Small Business Committee website. You can go to the Republican tab, go under press releases, and you may read it for yourselves. Senator Markey. May I make a unanimous consent request? Chair. Yes. Senator Markey. I make a unanimous request that the independent Government Accountability Office evaluation of the due diligence program that focuses on the Small Business Innovation program and the Small Business Technology Transfer program, that found that all 11 agencies have successfully implemented the due diligence program--and I congratulate you on that--in 2022, continues to be successful. They're working, and they've identified the potential foreign risk, and they've addressed them. And I would just like to put that report in the record. Chair. Without objection. Senator Markey. So that all of that information is made available. Chair. And with that, I want to thank our witnesses for being here with us today. I ask unanimous consent that the record of today's hearing remain open for two weeks for members to submit question, revise and extend their remarks, and submit additional information into the record. Chair. And without objection, so ordered. And again, we want to thank our witnesses for being here today, and obviously an issue of great importance to all of us. And with that, the Committee on Small Business and Entrepreneurship stands adjourned. [Whereupon, at 3:55 p.m., the hearing was adjourned.] [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] [all]