Article content

(Bloomberg) — The Republican leaders of three US House committees have begun an investigation into what they called China’s “systematic exploitation” of two federal funding programs that the Pentagon and other agencies use to tap innovation by American startups and small businesses.

Article content

Article content

“Due to inadequate oversight and weak due diligence measures, it appears that China has become one of the largest beneficiaries of these programs — turning what should be a pillar of American innovation into a tool for the CCP’s technological and military advancement,” according to a letter from the committee leaders, referring to the Chinese Communist Party.

Article content

The letter, dated Wednesday and reviewed by Bloomberg News, was sent to the 11 federal agencies that make awards through the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs including the Defense, Health and Human Services, and Energy Departments, as well as the National Science Foundation.

It was signed by Representatives Roger Williams, Brian Babin and John Moolenaar, the chairmen of the committees on Small Business and Science, Space, and Technology as well as the Select Committee on the Chinese Communist Party.

The programs, through which federal agencies have made more than $60 billion in awards since they were established decades ago, have become part of a debate about how the US can bolster its defense-industrial base against China.

Earlier: Former Dow Chemical Scientist to Lead US House’s China Committee

While the SBIR and STTR programs have benefited many now-established technology companies, such as the semiconductor giant Qualcomm Inc., some in Congress and the participating agencies have called for more vetting to guard against exploitation by China.

Article content

Article content

In their letter to federal agencies, the committees are seeking information about how officials identify and handle threats arising from applicants’ involvement in Chinese talent programs, links to China-based subsidiaries, and receipt of funding from governments or state-backed venture capital firms from US adversaries.

The committee leaders cite a 2021 report commissioned by the Pentagon called “Survey of PRC State-Sponsored Technology Transfers Affecting SBIR Programs” as evidence of unresolved national security issues at the programs.

The report, which was produced by a team led by former national security official Jeff Stoff, detailed eight case studies including examples of program awardees who dissolved their American companies, joined Chinese government talent programs and continued their work at entities that support the Chinese military. The report also tracked instances of SBIR recipients taking venture capital money from state-owned firms and of working with entities that support China’s defense industry.

Earlier: GOP China Panel Chair Slams US Chip Curbs for Huawei ‘Loopholes’

Article content

There was a showdown on Capitol Hill in 2022 when some Republican senators threatened to block the programs’ reauthorization if a variety of changes — including those regarding national security — weren’t made. 

Ultimately, Congress extended the programs through 2025 and required each awarding federal agency to create a due diligence program to mitigate risks posed by applicants with ties to adversary countries. But the lawmakers say the initiative has failed to fully address the China concerns, which are coming into focus again with the programs set to expire in September unless Congress renews them.

“Out of all the agencies that grant SIBRs, there are only about 4.5 due diligence teams that are somewhat functioning, and that is being generous,” according to Cyrus Miryekta, a former Air Force Office of Special Investigations investigator in Silicon Valley. He made the remarks in prepared testimony for a related hearing on the SBIR and STTR programs held by the Small Business Committee Wednesday. He said that in order for the vetting programs Congress mandated to be effective, they need funding.

“Since financial resources were not provided for this mission set, it seems most agencies intend to produce no results in the hopes of showing that the process does not work so that they are no longer asked to work this mission,” Miryekta continued.

Article content