HomeUncategorizedReport: China Benefits More from Pentagon Research than US

Report: China Benefits More from Pentagon Research than US

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According to a recent audit conducted by the Department of Defense (DoD) on its own spending, China is getting more out of the Federal Government’s investments in research than we are.

Here’s how it works: China locates companies that receive research funding from Washington and then coerces those companies into working for institutions linked to the Chinese military. After a time, the original company is dissolved and all of the information and research collected by it becomes the property of a Chinese subsidiary. 

These kinds of “transfers” have granted China unique information on drone and spacecraft technology, biohazard detection, solar energy, and pharmaceuticals. 

Such thievery goes far beyond the traditional definition of intellectual property (IP) theft, warns Senator Joni Ernst (R-IA):

“Folks, no matter how much of your money Washington spends to ‘win’ the global tech race, we will never win by surrendering American-made innovation and subsidizing our adversaries. This cycle will continue until these grant programs are both required and empowered to hold unscrupulous recipients of taxpayer funds accountable for selling out to China.”

The DoD report, which has not been made public, examines spending by two programs within the Defense Department: the Small Business Innovation Research (SBIR) program and the Small Business Technology Transfer (SBTT) program. 

These two initiatives were established to provide federal funding to small businesses engaged in high-risk research. As soon as a given research project becomes classified, noted Pentagon officials, it becomes ineligible to receive funding.

The SBIR/SBTT programs are “Congressionally authorized set-asides established to encourage domestic small businesses to engage in research and development with the potential for commercialization,” reads the official website (see link below). The programs “support scientific excellence and technological innovation through the investment of federal research funds in critical American priorities to build a strong national economy and accelerate capabilities to the warfighter.”

Combined, the programs are worth about $3.2 billion and the Pentagon accounts for roughly half of this sum. Included in the report was the clarification that nearly all DoD cash awarded through these programs benefits China more than the US. Though based on a small sample size, the audit’s finding should serve as a warning not just to the Pentagon but to all government agencies funding research that may be valuable to China. 

“Difficulty accessing capital can lead to the risk posed by adversaries,” warned a government official. “In other words, if DoD won’t fund them, another country likely will.”

While DoD officials claim there are policies in place designed to reduce the risk of theft, it is unclear what is actually being done. One of the few individuals actually making a real effort to solve this problem is David Rader, who serves as deputy director of the DoD’s Office of Foreign Investment Review (FIR).

The FIR is housed within the Committee on Foreign Investment in the United States (CFIUS), explains Rader, but some threats – including IP theft by foreign actors – fall outside the scope of the CFIUS.

“I built a team of data scientists and economists, lawyers, former program managers, and project officers…to really look at sticky national security issues in the financial and economic domain that are kind of non-traditional but pose a great risk to us,” said Rader during an interview with The Federal Drive’s Tom Temin.

With help from the intelligence community, commercial partners, and other allies, Rader’s team examines macroeconomic data to identify market trends, reviews specific transactions that may indicate a foreign actor’s interest, studies emerging critical or disruptive technologies that may be of interest to adversaries, and keeps an eye out for suspicious relationships like joint ventures, partnerships with academia, and the hiring of foreign board members.

Once a potential threat is identified, says Rader, it can be dealt with through the CFIUS. 

Rader noted that roughly 50% of affected companies are unaware they are being infiltrated by a foreign actor.

“China does a very good job of telegraphing, or, you know, explaining to people what it’s going after,” explains Rader. “And so they might say biotech or hypersonics. And so companies…you know, we might make a widget and biotech that we don’t think matters for national security. But if China or Russia is looking at it, you’re in our orbit, you’re part of the game now.”

Though Congress has not yet reauthorized the SBIR/SBTT programs past the end of September, Senator Ernst has preemptively introduced a bill that would renew them through 2025 while blocking funds to any company linked to “foreign countries of concern” including China. Her proposal would also force multiple federal agencies to report on any attempt by a foreign military to interfere with or hijack the programs. 

Senate lawmakers approved the bill last week.

Sources:

China used ‘double-crossing companies’ to steal US national security research 

Small Business Innovation Research / Small Business Technology Transfer

A guy deep in the Defense Department is actually doing something about Chinese theft of US intellectual property

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