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Innovation in the Crosshairs: Countering China's Industrial Espionage (Senate Small Business Committee hearing, July 23, 2025)

Summary

Printed transcript of a July 23, 2025 Senate Small Business and Entrepreneurship Committee hearing, S. Hrg. 119-168, on China's industrial espionage against small innovators. Chair Joni Ernst and Ranking Member Edward Markey opened. Witnesses were Emily de La Bruyère, Sujai Shivakumar of the Center for Strategic and International Studies and William Hannas of Georgetown University's Center for Security and Emerging Technology. Added items include an Ernst letter dated May 16, 2025, testimony from Patrick Gallagher and a committee majority report from May 2025. De La Bruyère and Hannas answered written questions from senators.

Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used

Cite this document

“Innovation in the Crosshairs: Countering China's Industrial Espionage (Senate Small Business Committee hearing, July 23, 2025).” Original at www.govinfo.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/innovation-in-the-crosshairs-countering-china-s-industrial-espionage-s-32e174e8f3/, SHA-256 597e238b28b47773424d2044c5cdb917cce0b3f39c15f1224f29bbb47a30d6bc.

Full text

                                                                                                                                                                  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




                                                                                                                                 (

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


                                                                                                                U.S. GOVERNMENT PUBLISHING OFFICE
                                                                                        61–657                              WASHINGTON : 2026




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                                                                                           COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP

                                                                                                         ONE HUNDRED NINETEENTH CONGRESS



                                                                                                               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




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                                                                                                                                CONTENTS

                                                                                                                                      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 Bruyère, Senior Fellow, Foundation for Defense of Democ-
                                                                                    racies, 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 Uni-
                                                                                    versity’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 Bruyère
                                                                                      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




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                                                                                               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, Jus-
                                                                                  tice, Husted, Markey, and Shaheen.
                                                                                                    OPENING STATEMENT OF SENATOR ERNST
                                                                                    CHAIR. I call the Committee on Small Business and Entrepre-
                                                                                  neurship 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 rank-
                                                                                  ing 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. Con-
                                                                                  gratulations, 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




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                                                                                  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 pre-
                                                                                  sented 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 consist-
                                                                                  ently been at the forefront of technological innovation. Nonetheless,
                                                                                  our adversaries, especially China, are working overtime to under-
                                                                                  mine 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 dig-
                                                                                  ital frontier.
                                                                                     Americans didn’t just invent, we built. We turned those big
                                                                                  dreams into real-world breakthroughs, securing a long and pros-
                                                                                  perous 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 indus-
                                                                                  tries. We need to be more clear-eyed folks. China desires nothing
                                                                                  more than to surpass the United States technologically and mili-
                                                                                  tarily.
                                                                                     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 ex-
                                                                                  ploitation, allowing countries like China to use well-known tech-
                                                                                  niques, including talent recruitment programs, to steal our innova-
                                                                                  tions. The CCP forces innovators across our vibrant startup econ-
                                                                                  omy 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 intel-
                                                                                  lectual 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 re-
                                                                                  vealing 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




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                                                                                  risk that each company coming through the doors and stop award-




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                                                                                  ing 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 de-
                                                                                  velop and deploy our best homegrown technologies while failing to
                                                                                  safeguard them against theft by our adversaries. This is why ear-
                                                                                  lier 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 home-
                                                                                  land 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 meas-
                                                                                  ures for Congress to consider.
                                                                                     I now recognize Ranking Member Markey for his opening state-
                                                                                  ment.
                                                                                                         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 rag-
                                                                                  ing 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 Massa-
                                                                                  chusetts 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 pro-
                                                                                  tecting our technology from China’s espionage. There’s no doubt
                                                                                  that American technology needs to be protected from foreign adver-
                                                                                  saries, but right now it is President Trump himself who is killing
                                                                                  American innovation and China is reaping the benefits of those de-
                                                                                  cisions.
                                                                                     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 ad-
                                                                                  ministration, proposed dismantling the Department of Education
                                                                                  beginning with laying off half of the department’s workforce, gutted




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                                                                                  U.S. Department of Agriculture, the Department of Energy, the En-
                                                                                  vironmental 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 re-
                                                                                  searchers. And it has gutted the National Science Foundation by
                                                                                  57 percent, and NASA by 24 percent, repealed the Inflation Reduc-
                                                                                  tion 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 administra-
                                                                                  tion?’’
                                                                                     And it has also even canceled previously awarded research
                                                                                  grants including one to Boston Children’s Hospital that was search-
                                                                                  ing for a vaccine to fight all coronavirus viruses, and he is restrict-
                                                                                  ing 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 uni-
                                                                                  versities, friendly immigration, policies of robust agency funding.
                                                                                  In 2022, 41 percent of basic research in the United States was fed-
                                                                                  erally funded, while only 35 percent was funded privately. Addi-
                                                                                  tionally, nearly a third of this federally-funded research was per-
                                                                                  formed 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, gut-
                                                                                  ting science-based agencies, canceling research grants, and dis-
                                                                                  suading 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 pro-
                                                                                  tect 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 inno-
                                                                                  vation.
                                                                                     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?




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                                                                                     Senator HAWLEY. I have voted.




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                                                                                     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 wit-
                                                                                  nesses 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 tes-
                                                                                  tifying here today. And I’m thankful that you did take time out of
                                                                                  your schedules to join us.
                                                                                     First, Ms. Emily de La Bruyère is the senior fellow at the Foun-
                                                                                  dation 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 se-
                                                                                  curity 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 Bruyère holds a bachelor’s degree from Princeton Uni-
                                                                                  versity 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 Emerg-
                                                                                  ing 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 ci-
                                                                                  phers 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 Univer-
                                                                                  sity 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 Na-
                                                                                  tional 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 Bruyère, we are going to start with you. You are




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                                                                                  STATEMENT OF MS. EMILY DE LA BRUYÈRE, SENIOR FELLOW,
                                                                                   FOUNDATION FOR DEFENSE OF DEMOCRACIES, SEWICKLEY,
                                                                                   PENNSYLVANIA
                                                                                     Ms. DE LA BRUYÈRE. 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 para-
                                                                                  digm-shifting domains where first mover advantage actually mat-
                                                                                  ters.
                                                                                     The strategy is working and it is asymmetric. It plays perfectly
                                                                                  to China’s strengths, including of scale, centralization, and indus-
                                                                                  trial capacity. China’s strategy also converts core U.S. characteris-
                                                                                  tics 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 trans-
                                                                                  forming the global order. Modern advances in technology are cre-
                                                                                  ating 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 gov-
                                                                                  ernment-guided Chinese entities go out into the international sys-
                                                                                  tem to obtain technology through acquisitions, to ventures, direct
                                                                                  and indirect investment, talent programs, and personnel recruit-
                                                                                  ment, 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 acquisi-
                                                                                  tion. Beijing deploys a parallel and compounding bring-in program,
                                                                                  leveraging the appeal of the Chinese market and Chinese indus-
                                                                                  trial base to attract foreign IP, research and development, data,
                                                                                  personnel, even capital.
                                                                                     This strategy and positioning put all U.S. technology at risk.




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                                                                                  ership is not only a losing one, but in fact, fuels America’s strategic
                                                                                  adversary. America needs to change its game. First, the U.S. gov-
                                                                                  ernment 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 en-
                                                                                  tities 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 sys-
                                                                                  tems, components, and software. Those restrictions should adopt
                                                                                  presumptions of denial. They should also adopt definitions of Chi-
                                                                                  nese 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 for-
                                                                                  feiting 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 produc-
                                                                                  tion in China, invest in Chinese entities, or maintain tech licensing
                                                                                  deals with Chinese entities should not be eligible for federal pro-
                                                                                  curement, 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 en-
                                                                                  vironment, 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 ad-
                                                                                  versary 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 Bruyère follows.]




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                                                                                     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 re-
                                                                                  search organization dedicated to advancing practical ideas to ad-
                                                                                  dress the world’s challenges with the core mission to define the fu-
                                                                                  ture 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 scal-
                                                                                  ing 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 devel-
                                                                                  oped or can’t reach scale because commercialization tools are un-
                                                                                  derfunded, others will seek seize the opportunity. So, this means
                                                                                  that we must reinforce key elements of our own innovation eco-
                                                                                  system.
                                                                                     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 abil-
                                                                                  ity 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 univer-
                                                                                  sities 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 na-
                                                                                  tional 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 advan-
                                                                                  tages 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 strate-




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                                                                                  gically support and expand it.




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                                                                                     As someone who’s directed multiple independent assessments of
                                                                                  SBIR at the National Academies of Science and Engineering, I con-
                                                                                  firm 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 gen-
                                                                                  eration, reconnaissance, quantum technologies, and missile propel-
                                                                                  lants.
                                                                                     At a time of intensifying technological competition, SBIR awards
                                                                                  contribute directly to our economic growth, technological leader-
                                                                                  ship, and capabilities. Our adversaries and competitors have recog-
                                                                                  nized 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, doc-
                                                                                  umented 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 uncer-
                                                                                  tainty. Secondly, we should strive to avoid overregulation. Micro-
                                                                                  level legislative requirements on the program tend to be less effec-
                                                                                  tive 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 agen-
                                                                                  cy-financed phase 3, particularly for agencies that don’t have a pro-
                                                                                  curement function.
                                                                                     So, in conclusion, I just want to say that innovation without com-
                                                                                  mercialization is in fact a lost opportunity, and in a world of accel-
                                                                                  erating 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 sta-
                                                                                  bility. Most importantly, it must remain embedded within a strong
                                                                                  ecosystem, one that is supported by sustained and substantial in-
                                                                                  vestment in our federal R&D agencies and research institutions.




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                                                                                     Thank you very much, and I look forward to your questions.




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                                                                                       [The prepared statement of Dr. Shivakumar follows.]




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                                                                                    Senator HAWLEY. Thank you very much. Dr. Hannas, you’re rec-
                                                                                  ognized for five minutes for your testimony. The floor is yours.
                                                                                  STATEMENT OF DR. WILLIAM HANNAS, LEAD ANALYST AND
                                                                                   RESEARCH PROFESSOR, GEORGETOWN UNIVERSITY’S CEN-
                                                                                   TER FOR SECURITY AND EMERGING TECHNOLOGY, RESTON,
                                                                                   VIRGINIA
                                                                                     Dr. HANNAS. Thank you, Chair, Ranking Member Markey, distin-
                                                                                  guished 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 Se-
                                                                                  curity and Emerging Technology, where I track Chinese threats,
                                                                                  technology threats posed by China. Prior to that, I was a senior in-
                                                                                  telligence 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 dis-
                                                                                  cipline. Kējı̀ qı̀ngbào, literally ‘‘S&T Intelligence’’, on a par with
                                                                                  other scientific fields, replete with degree programs, how-to manu-
                                                                                  als, academic journals, and career positions supported by legisla-
                                                                                  tion 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 tech-
                                                                                  nology is done by opportunistic individuals is pure myth. This is a
                                                                                  state-backed soup-to-nuts system that has been running at the cen-
                                                                                  tral 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 prac-
                                                                                  tices; legal, illegal, and extra-legal. Illegal transfers run from in-
                                                                                  sider 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 over-
                                                                                  sight 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 sup-
                                                                                  port, 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




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                                                                                  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 aca-
                                                                                  demics 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 lat-
                                                                                  eral especially vulnerable, owing to a scarcity of research funds and
                                                                                  investment capital, shrinking talent pools, fewer opportunities to
                                                                                  commercialize breakthroughs, inadequate due diligence, and lim-
                                                                                  ited 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 ac-
                                                                                  tors contemplating research in the United States and the U.S. per-
                                                                                  sons doing research, doing business in China.
                                                                                     Three, members of China’s overseas support guilds, talent re-
                                                                                  cruitment 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. au-
                                                                                  thorities to stand China’s transfer apparatus on its head. By seed-
                                                                                  ing 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.]




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                                                                                     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 Bruyère, let’s start with you. I was a proud leader in the cre-
                                                                                  ation 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 tech-
                                                                                  nology of innovative startups, and how can we best restrict the flow
                                                                                  of those taxpayer dollars to compromised entities?
                                                                                     Ms. DE LA BRUYÈRE. Thank you for that question. I obviously
                                                                                  can’t answer without first prefacing that China has an immense ar-
                                                                                  senal 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 Chi-
                                                                                  nese 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 in-
                                                                                  cluding as have been mentioned; talent programs, talent poaching,
                                                                                  and embedding of personnel.
                                                                                     Protecting against this requires top-down measures from Wash-
                                                                                  ington, 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 indi-
                                                                                  rect 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 di-
                                                                                  rect 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 cus-
                                                                                  tomer 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




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                                                                                  there has to be an actual risk in there.




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                                                                                     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 con-
                                                                                  tract. 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 compa-
                                                                                  nies which was in the top rank was pitching a professor at a U.S.
                                                                                  engineering college, whom I remembered as a China talent pro-
                                                                                  gram 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 appre-
                                                                                  ciate it. We will go next to a Ranking Member Markey for his ques-
                                                                                  tions.
                                                                                     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 driv-
                                                                                  ing 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 bil-
                                                                                  lion, 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 pro-
                                                                                  vide an example of a technology that would not exist without mul-
                                                                                  tiple award winners?
                                                                                     Dr. SHIVAKUMAR. Certainly. Well, I was just last month in Colo-
                                                                                  rado 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 in-
                                                                                  dustry, and if you think of the particular solicitations, there are
                                                                                  only going to be a limited number of these companies that can re-
                                                                                  spond 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




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                                                                                  industry in that region. So, it’s not just there are concerns about




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                                                                                  whether there are, is there is a problem with multiple award win-
                                                                                  ners, 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 sys-
                                                                                  tem 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 pro-
                                                                                  grams. 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 as-
                                                                                  pect in protecting our IP, but there’s also the consideration that it’s
                                                                                  a global race now in terms of innovation. There are multiple coun-
                                                                                  tries 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 cut-
                                                                                  ting 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 restric-
                                                                                  tions 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 play-
                                                                                  ing us for Uncle Sucker the whole way. And we just have to be re-
                                                                                  alistic 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 ve-
                                                                                  hicles 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,




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                                                                                  not just against us, but anyone else now being able to compete ef-




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                                                                                  fectively 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 com-
                                                                                  mittee 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 con-
                                                                                  vinced 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 BRUYÈRE. 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 inter-
                                                                                  national commercial ecosystem is to state-led enterprise driven ap-
                                                                                  proach, 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 enti-
                                                                                  ties 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 stra-
                                                                                  tegic value, but aren’t necessarily on a commercial trajectory, or
                                                                                  one that gives them the freedom to choose between long-term stra-
                                                                                  tegic 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, in-
                                                                                  deed, they are especially vulnerable small businesses for a number
                                                                                  of reasons. You know, one being the scarcity research funds and in-
                                                                                  vestment 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 op-
                                                                                  portunities, 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,




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                                                                                     Senator CURTIS. The FBI said that China is ‘‘the world’s prin-
                                                                                  cipal 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 account-
                                                                                  able 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 BRUYÈRE. I think to answer that question, you fun-
                                                                                  damentally go back to what China’s trying to do with intellectual
                                                                                  property. Beijing’s not just developing cutting edge technology, Bei-
                                                                                  jing is stealing cutting edge technology and then focusing on its ap-
                                                                                  plication. 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 environ-
                                                                                  ments.
                                                                                     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 con-
                                                                                  tinue to innovate.
                                                                                     I just want to point out that last week, the minority on the For-
                                                                                  eign 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 with-
                                                                                  drawal 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 organiza-
                                                                                  tions 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, includ-




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                                                                                     So, I would ask each of you how America’s small businesses ben-
                                                                                  efit from participation in international bodies like the World Intel-
                                                                                  lectual 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 stand-
                                                                                  ards 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 lan-
                                                                                  guage. 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 innova-
                                                                                  tion 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 ad-
                                                                                  vantage 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 BRUYÈRE. If I may add, I think one of the underesti-
                                                                                  mated risks of China’s approach is that Beijing has co-opted inter-
                                                                                  national 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 in-




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                                                                                     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 BRUYÈRE. 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 BRUYÈRE. 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 BRUYÈRE. I think that the most strategically signifi-
                                                                                  cant move with international organizations the U.S. could make
                                                                                  right now, would be to revoke China’s permanent normal trade re-
                                                                                  lations 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 BRUYÈRE. And then that could have trickle down ef-
                                                                                  fects 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 Re-
                                                                                  search 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 bipar-
                                                                                  tisan 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 rec-
                                                                                  ommendation 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




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                                                                                  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 informa-
                                                                                  tion 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 Chi-
                                                                                  na’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 ap-
                                                                                  plicable 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 BRUYÈRE, 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 re-
                                                                                  search, procurement, localization, investment in Chinese entities,
                                                                                  how would that work?
                                                                                     Ms. DE LA BRUYÈRE. 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 BRUYÈRE. 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 in-
                                                                                  vesting 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 sup-
                                                                                  port 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




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                                                                                     Senator JUSTICE. Thank you, Madam Chair, and Ranking Mem-
                                                                                  ber, and all these wonderful witnesses. And I’m not going to at-
                                                                                  tempt 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, be-
                                                                                  cause 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 after-
                                                                                  noon, 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 be-
                                                                                  lieve 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 Chair-
                                                                                  man’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 ac-
                                                                                  countants 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




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                                                                                  feel. But at the end of the day, come on guys, come on. All of us




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                                                                                  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 BRUYÈRE. 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 be-
                                                                                  lieve, 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 wit-
                                                                                  nesses 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 prop-
                                                                                  erty, 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 innova-
                                                                                  tions 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 relation-
                                                                                  ship 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 dis-
                                                                                  criminate among the countries that it exploits. Our book on Chi-




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                                                                                  nese industrial espionage, which it was translated in two lan-




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                                                                                  guages, 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 rec-
                                                                                  ommendation.
                                                                                     Senator HUSTED. Okay. Thank you.
                                                                                     Dr. SHIVAKUMAR. Challenge system research, a fantastic entre-
                                                                                  preneurial culture, but the scale up part of our innovation system
                                                                                  infrastructure has eroded over a number of years. We need to re-
                                                                                  build that so that we are the ones who are first and foremost ab-
                                                                                  sorbing 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 bar-
                                                                                  rier, 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 in-
                                                                                  complete. 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 com-
                                                                                  petitive 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 coordi-
                                                                                  nation 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 ven-
                                                                                  ture capitalist doesn’t know whether it’s a great idea. And so, by
                                                                                  creating you know, a two-phase validation of the commercial poten-
                                                                                  tial 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 tech-
                                                                                  nology 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 BRUYÈRE. 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 peo-




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                                                                                  ple, that all this will come at a cost in the short term, but that cost




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                                                                                  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 part-
                                                                                  ners, 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 INNO-
                                                                                  VATE 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 innova-
                                                                                  tions 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 In-
                                                                                  novation at CSIS. Not my favorite picture, but we’ll have that en-
                                                                                  tered 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 in-
                                                                                  novation 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 ar-
                                                                                  chitects 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 super-
                                                                                  charge our innovation system by reinforcing all the things that do
                                                                                  work and fixing the things that don’t. There are a number of con-
                                                                                  nection 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 Repub-
                                                                                  licans have had over generations, that it benefits our national secu-




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                                                                                  rity, it benefits our innovation culture.




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                                                                                     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 stu-
                                                                                  dents.
                                                                                     Now, in 2025, President Trump is doing the exact opposite; tak-
                                                                                  ing 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 im-
                                                                                  pacts 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 eco-
                                                                                  system, 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 Presi-
                                                                                  dent 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 rela-
                                                                                  tions, there’s nothing normal about trade relations with China. I
                                                                                  voted no each time. But there was a bipartisan consensus, Demo-
                                                                                  crat 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 any-
                                                                                  thing 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 invest-
                                                                                  ment that we make in innovation and R&D is just so critical. And
                                                                                  we are just unfortunately, increasingly, just leaving the playing




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                                                                                  field. And China, I’m sure is in a state of shock that we’re doing




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                                                                                  it, not receiving anything in return from the Chinese as a recip-
                                                                                  rocal 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. Ob-
                                                                                  viously, 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 dili-
                                                                                  gence 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 in-
                                                                                  formation, 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 inde-
                                                                                  pendent 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 avail-
                                                                                  able.
                                                                                     CHAIR. And with that, I want to thank our witnesses for being
                                                                                  here with us today. I ask unanimous consent that the record of to-
                                                                                  day’s hearing remain open for two weeks for members to submit
                                                                                  question, revise and extend their remarks, and submit additional




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                                                                                  information into the record.




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                                                                                     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 Entrepre-
                                                                                  neurship stands adjourned.
                                                                                     [Whereupon, at 3:55 p.m., the hearing was adjourned.]




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rfrederick on LAP6701GR3PROD with HEARING
                                                                                                                                                                              Insert offset folio 104 here SHRG168.034


                                            VerDate Sep 11 2014   05:08 Apr 17, 2026   Jkt 061657   PO 00000   Frm 00065   Fmt 6633    Sfmt 6602   E:\HR\OC\A657.XXX   A657
                                                                                                                                      62




rfrederick on LAP6701GR3PROD with HEARING
                                                                                                                                                                              Insert offset folio 105 here SHRG168.035


                                            VerDate Sep 11 2014   05:08 Apr 17, 2026   Jkt 061657   PO 00000   Frm 00066   Fmt 6633    Sfmt 6602   E:\HR\OC\A657.XXX   A657
                                                                                                                                      63




rfrederick on LAP6701GR3PROD with HEARING
                                                                                                                                                                              Insert offset folio 106 here SHRG168.036


                                            VerDate Sep 11 2014   05:08 Apr 17, 2026   Jkt 061657   PO 00000   Frm 00067   Fmt 6633    Sfmt 6602   E:\HR\OC\A657.XXX   A657
                                                                                                                                      64




rfrederick on LAP6701GR3PROD with HEARING
                                                                                                                                                                              Insert offset folio 107 here SHRG168.037


                                            VerDate Sep 11 2014   05:08 Apr 17, 2026   Jkt 061657   PO 00000   Frm 00068   Fmt 6633    Sfmt 6602   E:\HR\OC\A657.XXX   A657
                                                                                                                                      65




rfrederick on LAP6701GR3PROD with HEARING
                                                                                                                                                                              Insert offset folio 108 here SHRG168.038


                                            VerDate Sep 11 2014   05:08 Apr 17, 2026   Jkt 061657   PO 00000   Frm 00069   Fmt 6633    Sfmt 6602   E:\HR\OC\A657.XXX   A657
                                                                                                                                      66




rfrederick on LAP6701GR3PROD with HEARING
                                                                                                                                                                              Insert offset folio 109 here SHRG168.039


                                            VerDate Sep 11 2014   05:08 Apr 17, 2026   Jkt 061657   PO 00000   Frm 00070   Fmt 6633    Sfmt 6602   E:\HR\OC\A657.XXX   A657
                                                                                                                                      67




rfrederick on LAP6701GR3PROD with HEARING
                                                                                                                                                                              Insert offset folio 110 here SHRG168.040


                                            VerDate Sep 11 2014   05:08 Apr 17, 2026   Jkt 061657   PO 00000   Frm 00071   Fmt 6633    Sfmt 6602   E:\HR\OC\A657.XXX   A657
                                                                                                                                      68




rfrederick on LAP6701GR3PROD with HEARING
                                                                                                                                                                              Insert offset folio 111 here SHRG168.041


                                            VerDate Sep 11 2014   05:08 Apr 17, 2026   Jkt 061657   PO 00000   Frm 00072   Fmt 6633    Sfmt 6602   E:\HR\OC\A657.XXX   A657
                                                                                                                                      69




rfrederick on LAP6701GR3PROD with HEARING
                                                                                                                                                                              Insert offset folio 112 here SHRG168.042


                                            VerDate Sep 11 2014   05:08 Apr 17, 2026   Jkt 061657   PO 00000   Frm 00073   Fmt 6633    Sfmt 6602   E:\HR\OC\A657.XXX   A657
                                                                                                                                      70




rfrederick on LAP6701GR3PROD with HEARING
                                                                                                                                                                              Insert offset folio 113 here SHRG168.043


                                            VerDate Sep 11 2014   05:08 Apr 17, 2026   Jkt 061657   PO 00000   Frm 00074   Fmt 6633    Sfmt 6602   E:\HR\OC\A657.XXX   A657
                                                                                                                                      71




rfrederick on LAP6701GR3PROD with HEARING
                                                                                                                                                                              Insert offset folio 114 here SHRG168.044


                                            VerDate Sep 11 2014   05:08 Apr 17, 2026   Jkt 061657   PO 00000   Frm 00075   Fmt 6633    Sfmt 6602   E:\HR\OC\A657.XXX   A657
                                                                                                                                      72




rfrederick on LAP6701GR3PROD with HEARING
                                                                                                                                                                              Insert offset folio 115 here SHRG168.045


                                            VerDate Sep 11 2014   05:08 Apr 17, 2026   Jkt 061657   PO 00000   Frm 00076   Fmt 6633    Sfmt 6602   E:\HR\OC\A657.XXX   A657
                                                                                                                                      73




rfrederick on LAP6701GR3PROD with HEARING
                                                                                                                                                                              Insert offset folio 116 here SHRG168.046


                                            VerDate Sep 11 2014   05:08 Apr 17, 2026   Jkt 061657   PO 00000   Frm 00077   Fmt 6633    Sfmt 6602   E:\HR\OC\A657.XXX   A657
                                                                                                                                      74




rfrederick on LAP6701GR3PROD with HEARING
                                                                                                                                                                              Insert offset folio 117 here SHRG168.047


                                            VerDate Sep 11 2014   05:08 Apr 17, 2026   Jkt 061657   PO 00000   Frm 00078   Fmt 6633    Sfmt 6602   E:\HR\OC\A657.XXX   A657
                                                                                                                                      75




rfrederick on LAP6701GR3PROD with HEARING
                                                                                                                                                                              Insert offset folio 118 here SHRG168.048


                                            VerDate Sep 11 2014   05:08 Apr 17, 2026   Jkt 061657   PO 00000   Frm 00079   Fmt 6633    Sfmt 6602   E:\HR\OC\A657.XXX   A657
                                                                                                                                      76




rfrederick on LAP6701GR3PROD with HEARING
                                                                                                                                                                              Insert offset folio 119 here SHRG168.049


                                            VerDate Sep 11 2014   05:08 Apr 17, 2026   Jkt 061657   PO 00000   Frm 00080   Fmt 6633    Sfmt 6602   E:\HR\OC\A657.XXX   A657
                                                                                                                                      77




rfrederick on LAP6701GR3PROD with HEARING
                                                                                                                                                                              Insert offset folio 120 here SHRG168.050


                                            VerDate Sep 11 2014   05:08 Apr 17, 2026   Jkt 061657   PO 00000   Frm 00081   Fmt 6633    Sfmt 6602   E:\HR\OC\A657.XXX   A657
                                                                                                                                      78




rfrederick on LAP6701GR3PROD with HEARING
                                                                                                                                                                              Insert offset folio 121 here SHRG168.051


                                            VerDate Sep 11 2014   05:08 Apr 17, 2026   Jkt 061657   PO 00000   Frm 00082   Fmt 6633    Sfmt 6602   E:\HR\OC\A657.XXX   A657
                                                                                                                                      79




rfrederick on LAP6701GR3PROD with HEARING
                                                                                                                                                                              Insert offset folio 122 here SHRG168.052


                                            VerDate Sep 11 2014   05:08 Apr 17, 2026   Jkt 061657   PO 00000   Frm 00083   Fmt 6633    Sfmt 6602   E:\HR\OC\A657.XXX   A657
                                                                                                                                      80




rfrederick on LAP6701GR3PROD with HEARING
                                                                                                                                                                              Insert offset folio 123 here SHRG168.053


                                            VerDate Sep 11 2014   05:08 Apr 17, 2026   Jkt 061657   PO 00000   Frm 00084   Fmt 6633    Sfmt 6602   E:\HR\OC\A657.XXX   A657
                                                                                                                                      81




rfrederick on LAP6701GR3PROD with HEARING
                                                                                                                                                                              Insert offset folio 124 here SHRG168.054


                                            VerDate Sep 11 2014   05:08 Apr 17, 2026   Jkt 061657   PO 00000   Frm 00085   Fmt 6633    Sfmt 6602   E:\HR\OC\A657.XXX   A657
                                                                                                                                      82




rfrederick on LAP6701GR3PROD with HEARING
                                                                                                                                                                              Insert offset folio 125 here SHRG168.055


                                            VerDate Sep 11 2014   05:08 Apr 17, 2026   Jkt 061657   PO 00000   Frm 00086   Fmt 6633    Sfmt 6602   E:\HR\OC\A657.XXX   A657
                                                                                                                                      83




rfrederick on LAP6701GR3PROD with HEARING
                                                                                                                                                                              Insert offset folio 126 here SHRG168.056


                                            VerDate Sep 11 2014   05:08 Apr 17, 2026   Jkt 061657   PO 00000   Frm 00087   Fmt 6633    Sfmt 6602   E:\HR\OC\A657.XXX   A657
                                                                                                                                      84




rfrederick on LAP6701GR3PROD with HEARING
                                                                                                                                                                              Insert offset folio 127 here SHRG168.057


                                            VerDate Sep 11 2014   05:08 Apr 17, 2026   Jkt 061657   PO 00000   Frm 00088   Fmt 6633    Sfmt 6602   E:\HR\OC\A657.XXX   A657
                                                                                                                                      85




rfrederick on LAP6701GR3PROD with HEARING
                                                                                                                                                                              Insert offset folio 128 here SHRG168.058


                                            VerDate Sep 11 2014   05:08 Apr 17, 2026   Jkt 061657   PO 00000   Frm 00089   Fmt 6633    Sfmt 6602   E:\HR\OC\A657.XXX   A657
                                                                                                                                      86




rfrederick on LAP6701GR3PROD with HEARING
                                                                                                                                                                              Insert offset folio 129 here SHRG168.059


                                            VerDate Sep 11 2014   05:08 Apr 17, 2026   Jkt 061657   PO 00000   Frm 00090   Fmt 6633    Sfmt 6602   E:\HR\OC\A657.XXX   A657
                                                                                                                                      87




rfrederick on LAP6701GR3PROD with HEARING
                                                                                                                                                                              Insert offset folio 130 here SHRG168.060


                                            VerDate Sep 11 2014   05:08 Apr 17, 2026   Jkt 061657   PO 00000   Frm 00091   Fmt 6633    Sfmt 6602   E:\HR\OC\A657.XXX   A657


File and source

File
CHRG-119shrg61657.pdf
Size
22,856,084 bytes
SHA-256
597e238b28b47773424d2044c5cdb917cce0b3f39c15f1224f29bbb47a30d6bc
Our copy
CHRG-119shrg61657.pdf
Original
www.govinfo.gov
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