▶ 0:17:24Good morning to everyone and I now call the Committee on Small Business to order. Without objection, the chair is authorized to declare recess of the committee at any time. I now recognize myself for my opening statement and I want want to welcome you to today's hearing titled Defending Main Street: Combating the CCP Threats to American Small Businesses. First, I want to thank our witnesses for being here today and for sharing their expertise on the important issue.
▶ 0:17:49I also thank my colleagues for joining us as we examine the challenges facing America's businesses in an increasingly competitive and complex global environment. Uh small business small businesses are essential to the American economy. They drive innovation, create jobs, and strengthen our communities. From cutting-edge technology startups to family-owned manufacturers, small business play a vital role in driving America's economy and reinforcing our national security. However, this vital engine of our economy is under threat.
▶ 0:18:18The Chinese Communist Party has made it a priority challenge the United States economically and strategically. In doing so, the CCP is exploiting every opportunity to target American American entrepreneurs invest significant time, capital, and ingenuity into developing new products and technologies. Yet, far too often, these innovations are stolen, replicated overseas, and sold at a lower cost, undermining the very business that created them. CCP-linked investments in small businesses also raise serious concerns.
▶ 0:18:48Many small businesses, particularly startups, rely on outside capital to grow and scale. But when the capital comes from entities tied directly or indirectly to foreign adversaries, sensitive technologies and proprietary information risk being exposed and exploited. In some cases, these investments are uh structured in ways that obscure their true origin, making it difficult for entrepreneurs to identify the potential risk. Additionally, supply chain dependence on China continues to pose a serious threat.
▶ 0:19:18And for decades, American businesses outsourced production to China due to low low labor costs. While this is efficient in the short term, it also creates significant risks, especially for small businesses that lack the resources to shift production or diversify suppliers. These challenges are not economic, they are matters of national security. Today's hearing is an opportunity to better understand how these threats impact small businesses and identify practical solutions.
▶ 0:19:45We must ensure that America's entrepreneurs have the tools they need to protect their innovation, secure trusted sources of capital, and build resilient supply chains. If we fail to act, we risk losing not only our competitive edge, but also the ingenuity and entrepreneurial spirit that define our nation. I look forward to hearing from our witnesses about their experiences and recommendations for how Congress can support and protect America's small businesses. With that, I now yield to my friend and our distinguished ranking member from New York, Ms.
▶ 0:20:15Velázquez, for her opening remarks. Thank you, Mr. Chairman. Thank you to all the witnesses for being here with us this morning. In March of 1942, just after our entry into the Second World War, the US Army, citing an executive order signed by President Roosevelt and backed by a law passed by Congress, forced over 100,000 ethnic ethnically Japanese people on the West Coast, including
▶ 0:20:45US citizens, into what even even President Roosevelt himself called concentration camps. The army was never required to prove that the Americans in the camps posed any threat to national security. In fact, no Japanese American was ever convicted of any act of sabotage during the war.
▶ 0:21:10Their mere ethnicity was enough in the eyes of the federal government and the media to imply disloyalty to the country they were born in, lived in, and worked Each family was given a week to register with the government, liquidate their homes and businesses, gather what they could carry, and report to assembly centers, often converted from outdoor race tracks and fairgrounds, to wait to be sent to their assigned camp.
▶ 0:21:40Once shipped to their camps, prisoners were made to sleep in barracks and confined spaces with little privacy and quality of life under the constant watch of snipers and armed guards. By the end of the war, 125,000 people, half of whom were children, had stayed in the camps. 84 years had passed since this deep injustice began.
▶ 0:22:09In 1988, President Reagan signed the Civil Liberties Act of 1988, apologizing for it and providing reparations to the victims of the camps. But I see alarming echoes of this injustice in our discourse surrounding China, echoes that are manifesting in this hearing.
▶ 0:22:32Let me be clear, the People's Republic of China is America's foremost strategic competitor. The practices it has employed to bolster its state-controlled firms, corner markets, and undermine free competition around the world are hurting America's technological leadership and small businesses. The federal government must do what it can to address these issues.
▶ 0:23:01That is why I proudly voted for the Chips and Science Act and Inflation Reduction Act to set industrial policies strengthening the entire ecosystem of resources, tax incentives, ancillary businesses, and workforce development surrounding the domestic manufacturing of strategic technologies and critical components.
▶ 0:23:24Furthermore, multiple programs exist at the SBA and elsewhere in the federal government to bolster small businesses through capital access and technical assistance, which I have been pleased to support and strengthen throughout my tenure in Congress.
▶ 0:23:42That is also why I vehemently opposed the Trump administration's action to undermine these far-sighted investments and substitute them with broad untargeted tariffs, mass deportation, doge codes, and racism against immigrants and minorities.
▶ 0:24:02Not only are these actions morally bankrupt, but they are also necessary and undermine our national security and It is entirely possible for the federal government to protect our national security without stepping into the slippery slope that is ethnic profiling.
▶ 0:24:22That means tackling complicated problems with nuanced solutions and examining policies based on their merits, not engaging in inflammatory messaging and fear-mongering against Americans and other people of Chinese ancestry. I sincerely hope that today's conversation stays within those bounds. With that, I thank the witnesses for being here and I yield back.
▶ 0:24:50The gentlelady yields back and I will now introduce our witnesses. The first witness today is Mr. Pohotsky. Mr. Pohotsky is the Vice President and Fellow of Economic Security and Systems Planning and Analysis Inc. He is a former senior executive member of the US Department of Defense with nearly three decades of experience in policy, acquisition, intelligence, and operations. Throughout his career, Mr.
▶ 0:25:14Pohotsky has led major defense modernization initiatives and advised senior leaders on strengthening supply chains and emerging technologies. Mr. Pohotsky holds a bachelor's degree in international economics from Salisbury University, home of the Fighting Seagulls. Right? has and has completed advanced technologies at Defense Acquisition University, the Naval Postgraduate School, and the US Army War College. Appreciate having you here today.
▶ 0:25:43Our next witness is Mr. Sean Murphy. Mr. Murphy was founder of the Bison Blockchain, a large-scale Bitcoin mining company in Cheyenne, Wyoming. Bison Blockchain faced a takeover attempt by the CCP and ultimately secured a CFIUS divestment order. He is also the founder of Compassion.
▶ 0:26:05Earlier in the career, he has a he was a researcher and a speaker on on hemp, finance, and healthcare policy, making appearances at the White House, Congress, and major media outlets. Mr. Murphy is volunteers in the VA hospice care, is a palliative care father to a child with a rare terminal disease, and is a US State Department Professional Fellow, and we will pray for your family. He earned a bachelor's degree from the University of Notre Dame. I don't know what their mascot is.
▶ 0:26:35Oh, is it? Okay. I knew you'd remember that. Our next witness, Mr. Tom Lyons. Mr. Lyons is the co-founder of 24/30 Group, a non-partisan non-profit organization focused on helping the US private sector defend against foreign He works with business leaders to protect intellectual property and address threats from foreign adversaries. Previously, previously served for 15 years as national security executive executive in the US federal government, advancing US interests in complex global environments.
▶ 0:27:05Mr. Lyons holds a holds a Juris Doctor from the Catholic University of America and degree in international finance and German from Auburn University, home of the Tigers. And now recognize the ranking member from New York, Ms. Velázquez, to briefly introduce our last witness. Thank you, Mr. Chairman. I would like to welcome Dr.
▶ 0:27:24Rush Doshi, who is an assistant professor at the Georgetown University Walsh School of Foreign Service and the Zeev Star Senior Fellow for Asia and the director of the China Strategy Initiative at the Council on Foreign Relations. Previously, Dr. Doshi served as the Deputy Senior Director for China and Taiwan on the last administration's National Security Council. In that role, Dr.
▶ 0:27:53Doshi helped manage the NSC's first China directory, coordinated China and Taiwan policy, drafted President Biden's China strategy, and served as a top negotiator in matters regarding the PRC, Taiwan, and the alliance. Dr. Doshi holds a bachelor's degree from Princeton and a PhD from Harvard. Welcome.
▶ 0:28:21Thank you for being Thank you. We appreciate again all of you being here today. So, before we recognize the witnesses, I'd like to remind them that their oral testimony is restricted to 5 minutes in length. You all have done that. We stick with that. If you see the light turn red in front of you, it means your 5 minutes have concluded and you should wrap up your testimony. If you're still out there talking after five, you're going to hear That means shut it down, okay? All right.
▶ 0:28:52So, with that in mind, I now recognize Mr. Pohotsky for his 5-minute opening remarks. Thank you, sir. The views expressed in this testimony are my own and do not necessarily reflect those of my employer. Chairman, ranking members, and members of the committee, thank you for the opportunity to testify today on the sophisticated and evolving actions of the Chinese Communist Party and the cascading impact those actions are having on America's small businesses, the industrial base, and the broader United States economy.
▶ 0:29:22This hearing reflects an important recognition. Small businesses are central to the United States industrial capacity, innovation base, and long-term strategic advantage. The bottom line is clear. Protecting America's small business is not simply an economic issue. It is a national security imperative. Every large business started small.
▶ 0:29:42Many firms that will shape America's future manufacturing base, technological advantages, and small businesses today often operate within fewer resources and fewer protections. Protecting them means protecting America's long-term competitive advantage. In today's environment, economic security is national security. The United States' ability to innovate, produce, secure supply chains, and scale trusted capacity is directly tied to our ability to project power globally.
▶ 0:30:11The defense industrial base is a useful point of reference, but the line between it and the broader American industrial base continues to shrink. Technologies converge, dual-use applications often manifest over time. And software and other less tangible technologies operate across multiple multiple domains and environments simultaneously. What appears purely commercial today may become critical to national security tomorrow.
▶ 0:30:37For that reason, these should be understood as codependent parts of the same national industrial ecosystem. The challenge is that the Communist Party of China links threats to small businesses rarely appear in only one form. They can emerge through investments, supply chain exposures, intellectual property theft, or commercial relationships that appear beneficial at first, but create long-term strategic vulnerabilities. For many small businesses, the threat does not present itself as coercion.
▶ 0:31:06It presents itself as an opportunity. Small businesses are often among the most innovative actors in our economy. The examples are endless, but they are also among the least equipped to detect, deter, and counter nation nation-state Many operate with limited capital, limited legal support, and little margin for error when promising opportunities carry hidden risk. When small business is compromised, the loss is not confined to a single firm.
▶ 0:31:33The spillover effects can be seen in reduced innovation, weakened resilience, and less trusted capacity for the whole of the economy. The greater concern is not simply the loss of any one single contract, company, or technology. It is the cumulative effect of allow allowing promising American firms to be weakened before they can fully scale, compete, and contribute to the nation's long-term economic and national security growth. That is how strategic erosion happens.
▶ 0:32:01That is how the CCP is doing it, quietly, incrementally, and often before national security implications are fully The policy goal, in my view, should be straightforward. Trusted growth, American advantage. That means helping small businesses recognize risk earlier and making it easier for them to choose trusted capital, trusted supply chains, and trusted partners. The central question is not whether we will respond after American company has been compromised.
▶ 0:32:32It is whether we will act early enough to help the next generation of American innovators, manufacturers, and strategic suppliers grow on a trusted, secure, and competitive path from the start. I thank you for your time, and I look to your questions. Gentleman yields back. I now want to recognize Mr. Murphy for his 5-minute opening remarks.
▶ 0:32:57Chairman Williams, ranking member, and distinguished members of the House Small Business Committee, I'm a former executive at Bison Blockchain. I'm here today as an entrepreneur and small business owner who survived a Chinese takeover that literally wiped out everything we had In 2022 and 2023, Bison Blockchain poured sweat and every last dollar into building the largest Bitcoin mine in Wyoming, near Cheyenne, and just 1 mile from the Warren Air Force Base and our nation's
▶ 0:33:28Minuteman III missiles. When our domestic capital fell through, we took a last-minute lead investor who claimed to be from Singapore and international businessman. After breaking ground, it became clear they were from Beijing and Hong Kong, majority Chinese nationals backed by CCP-linked capital, who also ran IP transfer companies. Just before Bitcoin mining began, they brought in personnel from China to replace us as operators.
▶ 0:33:57They sued for breach of We sued for breach of contract and interference, and then they countersued us, a small local business, for $110 million. It was unfair. It was hugely inflated, it was lawfare. And effectively, they were mocking us and our judicial system. They hired six law firms, two in New York, one in Los Angeles, and three locally in Cheyenne. And they exploited between their Wyoming lawyers and Wyoming state legislators.
▶ 0:34:28Then came the presidential CFIUS divestment order, but they saw it coming, and they sold the site to CleanSpark, a large US public company with hundreds of millions of dollars in contracts with Bitmain, one of the Chinese defendants. Bitmain is now under investigation in Operation Red Sunset by the Department of Homeland Security. This wasn't competition.
▶ 0:34:51This was the Chinese mocking us and working with CleanSpark to try to wipe out the small the local guys, the Main Street guys. Their plan would have succeeded but for the extraordinary work of my father, Patrick Murphy, Bison's attorney, my brother Michael, Bison's co-founders, and two men who are here today, Andrew Estepona, our CFIUS expert, and Cyrus Miryekta, a national security consultant who helped us.
▶ 0:35:17I'd also like to acknowledge Beth Clay, who's not here, but uh all of these individuals really helped me in this process with the Chinese. They were going to run off with the money, everyone, the sales money. Uh that was their plan, but we were able to secure landmark writs of prejudgment attachment and garnishment, where the Wyoming Federal District Court took control of the sales money. And once they took control of the sales money, we were then able to negotiate a settlement.
▶ 0:35:47So effectively, we got money out and beat the Chinese. Who am I in all of this? I am a palliative father. My son battles a terminal illness, and I fight for his life every day. For 16 years, I've been a VA hospice volunteer, sitting at the bedside of dying warriors who've served this country, honoring the promise that no veteran dies alone.
▶ 0:36:10My advocacy for my son and veterans centers on palliative care and access to cannabinoids, rescheduling marijuana from Schedule 1 to Schedule 3 to unlock research and healing, especially for rare diseases. I'm also an advocate against child trafficking, and I implore you to stand against it at home and abroad.
▶ 0:36:28These realities made me something the Chinese did not anticipate in the lawfare, a father who had faced bigger, scarier dragons than them and their 16 Being with my son and veterans, I we are not chemical beings to be pumped full of pharmaceuticals. We are electrical beings that need to be filled with light.
▶ 0:36:49Our bodies run on bioelectric fields, energy pathways, and natural This is biology, that every cell has an electrical charge, every muscle movement, every heartbeat is a result of an electrical charge or discharge. The EKG and EEG medical tests are measuring electrical impulses in the heart and brain. As a palliative father, I tried everything else to help my son.
▶ 0:37:12Only energetic medicine, including sound and light therapies, brought him relief when nothing else And this is the next wave of healthcare, and the intellectual property behind it is pure gold. As a hospice volunteer, I've seen how rampant fraud and abuse in healthcare devastate patients and small businesses, from massive durable medical equipment overbilling in Florida to ghost hospice facilities in California siphoning hundreds of millions, literally, from Medicare and Medicaid.
▶ 0:37:40These scams inflate taxes for every family, erode trust in legitimate services, and risk bankrupting these And our adversaries, like the CCP, can and do exploit to weaken us economically from within.
▶ 0:37:55Lawfare and IP theft are a direct threat to Main Street, and we cannot allow any foreign country, especially the CCP, against to do these things against American entrepreneurs, parents, and I've included four recommendations in my written testimony, and I urge your good consideration and action. Thank you for this opportunity to testify and tell my story. Gentleman yields back. Uh I now recognize Mr. Lyons for his 5-minute opening remarks.
▶ 0:38:23Chairman Williams, Chairman Williams, ranking member of Velázquez, members of the committee, thank you for this hearing. My name is Tom Lyons. I am a former CIA officer and the co-founder of 24 30 Group, a nonprofit, nonpartisan organization that educates and defends US innovation from nation-state economic espionage.
▶ 0:38:43I'm here because America's America's small businesses are under attack, and most of them do not know We have long characterized the CCP as a strategic competitor, but we need to ask ourselves whether their behavior is that of a competitor or that of a nation at war. These are two different things, and they prompt two different policy responses. I would offer this.
▶ 0:39:05In the book Unrestricted Warfare from 1999, two PLA colonels wrote that the future of conflict would be waged through economic subversion, technology theft, and the destruction of a rival's competitive advantage. The CCP recognizes that this kind of non-kinetic, gray zone warfare against our companies, our research institutes, and our small businesses can be more effective than a kinetic war. In their own words, this is war, and we should take them at their word.
▶ 0:39:35When it comes to measuring the damage from this war, the numbers we hear about are dangerously incomplete. It's often cited from the IP Commission that we lose between 225 and 600 billion annually to economic espionage. Those numbers do not capture incidents like Apple abandoning the autonomous vehicle industry in part because of PRC espionage or one Google engineer walking out with the chip designs that power AI It doesn't capture the metrics of the hundreds of companies that were never because we lost the
▶ 0:40:05entire industry. America pioneered the solar the solar energy lithium batteries, drones, wind turbine industries, and China dominates all of these today. We invented the world's pharmaceutical innovations, but China today controls the key starter materials in all of our Production grinds to a halt if China restricts our supply chain. The real costs are the entire sectors of the US economy that no longer exist. Stand back and look at the industries that China has targeted and currently dominates.
▶ 0:40:35Energy, communication, logistics, medicine, advanced computing, These are all foundational for winning any conflict. And it is not limited to critical The same pattern plays out in agriculture, manufacturing, and consumer goods. If Apple, a $3 billion company, could not protect its AV program, what chance does a small startup have? A third of our small businesses rely on free antivirus software. 60% shut down within months of a major cyber attack.
▶ 0:41:04We've caught the big cases because those companies had cyber or counterintelligence measures in place, but most companies most small companies do not. Small businesses make up 99% of the US firms, and they employ nearly half of the workforce. They are the hub of American innovation, the engine of our economy, and the foundation of our ability to project force in any In China's unified economy, one company steals technology, a second will manufacture it, and a third will export it.
▶ 0:41:32Our legal system treats each as acting alone, however, so we miss the opportunity to hold the system As you know, American taxpayers have funded part of this effort through small business innovation grants or PPP loans going to PRC state-owned entities. We've subsidized our own long-term decline because we haven't had basic checks in place. American executives go to federal prison for price-fixing, insider trading, anti-competitive behavior, yet the PRC does this at a nation-state scale.
▶ 0:42:03What the PRC is doing goes beyond trade, diplomatic, or regulatory issues. They are exploiting our system, which was designed for good faith commercial actors. The playing field is simply I want to be clear. This fight is against the Chinese Communist Party. It is not against the Chinese people. Many Chinese nationals come here to escape the system. They are victims of CCP coercion themselves. Our response must be precise, targeting conduct, not targeting ethnicity.
▶ 0:42:32In my written testimony, we propose specific legislative initiatives, the centerpiece being the Foreign Economic Espionage Designation Act. In this case, the president would designate specific entities as foreign economic espionage It would then be a federal crime to knowingly accept compensation or material benefit from such a designated organization. This targets the so-called talent programs or the expert networks that incentivize theft across our industry.
▶ 0:42:57We also propose the Malign Foreign Interests Disclosure Act, requiring that any entity receiving material state support from a country of concern disclose that relationship publicly. American businesses deserve transparency in whom they're doing business with. We do not ask American citizens to wage war against foreign nation-states. That's the government's job. But that is exactly what we are asking 33 million small businesses to do.
▶ 0:43:22If this is war, and it seems like the PLA has said as much, then the government must subsidize counterintelligence the same way we fund national defense. American industries face an existential threat from the CCP, and our small businesses are on the front lines with limited defenses, intelligence, and government support. The essential point is this. Main Street should not have to fight this alone. It's not an equal playing field. Thank you for the opportunity. Gentleman yields back. I now recognize Dr. Doshi for his 5-minute opening remarks.
▶ 0:43:53Thank you, uh, Chairman Williams, Ranking Member Velázquez, and distinguished members of the committee. Uh, I appreciate the opportunity to testify today. My argument is simple. Our small businesses are critical to America's future in manufacturing and technology. But today, China is mounting the most comprehensive industrial strategy any power has ever attempted and is putting our small businesses at existential The urgent task for this committee is to consider how to help our small businesses meet this unprecedented I want to divide my testimony into four First, what are China's objectives?
▶ 0:44:24The Chinese Communist Party aims to catch up and surpass the West. It believes there have been four industrial revolutions that determine the fate of nations. The first was steam power, which brought British dominance. The second was electrification, and the third was mass manufacturing, which brought American dominance. And now we're in the fourth. Quantum, biotech, AI, and robotics, where China is determined to win not just for prosperity, but for relative power. And Beijing sees manufacturing as the key to winning this revolution. That brings me to a second question. How is China doing in manufacturing?
▶ 0:44:55China overtook the United States to become the world's dominant manufacturer in less than 25 years. Over that period, our share of manufacturing fell by half, from 30 to 15%, while China's share quintupled from 6% to 30%. It now exceeds that of the next nine countries combined, and it isn't standing still. China is spending roughly $400 billion a year on industrial policy. By contrast, the US Chips and Science Act is 50 billion over multiple years. That leads to a third question.
▶ 0:45:26What is the role of small business in this story?
▶ 0:45:29Large firms have dominated American manufacturing for decades, but their supply chains are made up of smaller firms. Today, small business is the path to American reindustrialization. Small businesses are the keepers of specialized manufacturing knowledge. They are the producers of precision components, tooling, and specialty Take aerospace and defense. Roughly 70% of Beijing's Dreamliner comes from its smaller suppliers. Roughly 60% of all employment in that sector is small and mid-size businesses, and the story is similar in other sectors, too, like automotives.
▶ 0:45:59Now, China sees the value of small and medium enterprises. 10 years ago, when it launched its Made in China 2025 program to catch up and surpass the West in key sectors, it saw small business as part of the plan. So, it launched the so-called Little Giants program to boost innovation, eliminate foreign suppliers, and create global competitors in high technology.
▶ 0:46:19That program is a competitive program, but once firms get in, once they get that Little Giants designation, they get access to an incredible package of loans, subsidies, state equity investments, expedited patent processing, university research support, streamline stock market listings, and even off-take from SOEs and the government. Today, more than 17,000 Chinese firms have been designated Little Giants. 90% are in high-tech manufacturing, and some have grown into global titans, like Unitree Robotics.
▶ 0:46:47That is what our system is up against, which leads to a fourth and final question. What do we do? The SBA has some powerful tools. In FY25, it guaranteed 45 billion in loans to more than 85,000 small businesses, the most in its history. But the truth is this is simply not enough to keep up with Beijing, and I'd like to offer a few proposals. First, China is going all in on research support, but we've let the programs that we use to support early-stage research lapse. Congress should immediately reauthorize the Small Business Innovation Research and the Small Business Technology Transfer programs.
▶ 0:47:19Second, China packages its benefits together and ties them to a certification program, whereas we launch often uncoordinated individual initiatives. We can change that. Congress can launch a certification program that provides a coordinated package, demand-side, supply-side, and regulatory support for our high-tech small companies.
▶ 0:47:36Third, China's Little Giants raised about $125 billion in the last few years from private sources, often with state Meanwhile, the first cohort of our SBIC Critical Tech program might raise 4 Congress should scale up that kind of Fourth, China manufacturers enormous access Chinese manufacturers are able to access low-cost capital, including To keep up, Congress should raise the number of loans, the loan cap, and the total appropriation for the SBA's new manufacturing access to revolving credit
▶ 0:48:07And fifth, China's Little Giants can draw on universities, state institutes, and SOEs for technical assistance. Our equivalent program has lapsed. Congress should restore the Manufacturing Extension Partnership These are just a few recommendations, but the common thread through all of them is integration. The SBA has loans, equity vehicles, R&D programs, and technical assistance programs. What it lacks is a mechanism to deploy them together in a coordinated China built that kind of program, and it's working. This committee has the tools and the jurisdiction to build the American equivalent.
▶ 0:48:37Thank you for your time, and I look forward to your Gentleman yields back, and we will now move to the member questions under the 5-minute rule. I recognize myself for 5 minutes. Mr. as a small business owner, you were directly involved in a dispute with Chinese-controlled entity that ultimately forced your company out of its own project. You mentioned that. Can you walk us through how that situation unfolded and what warning signs, if any, uh, you now recognize maybe in hindsight?
▶ 0:49:08Yes, thank you, Mr. Chairman, members of the committee. there were there were warning signs, but all of this was under a prevailing need for expediency. We had secured through an RFP process contracts to electrical power, and that's what you need to mine Bitcoin is a lot of electrical power. And our lead investors fell through. We had raised $3 million, but we needed a lot more to build out the project.
▶ 0:49:34So, we had this quick need to secure the capital to execute the project. And we ultimately for lack of better term got in bed financially with these Chinese partners. So, the first one was the diligence. We did not have time and the nature of the capital need was expedient. Like we had to execute on this or we would have lost the power contract. So, there's the due diligence piece that could have should have been better, but it wasn't because things had to move quickly.
▶ 0:50:00And then second, as things devolved and that played itself out was the nature of the lawfare. And they were mobilized, they were strategic, and they knew what they were doing in hiring all of these lawyers and law firms at national and local levels to crush us under legal fees. So, it was really those two. It was the upfront things that could have should have been different, but it was so quick, we couldn't do it differently.
▶ 0:50:26And then as things played out, there was nowhere to go as a small business when the lawfare was happening. There wasn't a congressional There was no federal mechanism in that or we weren't aware of it. We were just a small business left to to duke it out. And I I don't I don't know how that would be solved. There's There's some possibilities, but that was the difficult spot once it came to that, Mr.
▶ 0:50:49Thank you. Mr. Polsky, capital is the lifeblood of small business. We all know that and many rely on alternative investments to scale, but may not have the resources to fully vet investors. So, my question to you would be how can we help small businesses identify and avoid the investments from entities which ties to foreign adversaries, particularly those connected to the CCP? Thank you, Chairman, for the question.
▶ 0:51:13Your and your question is spot-on to to a plan that I've devised with the acronym TRUST, meaning trusted resilient US tracks. And it's underpinned by 10 different items that are very simple and effective and in place today. Launch small business-led trusted capital programs at each department and agencies embedded already in that fabric that exists. Streamline due diligence support with grants and affordable tools for small businesses.
▶ 0:51:39Incentivize supply chain diversifi- diversification through tax credits and Establish vetted suppliers list that highlight secure approved partners. Foster public-private partnerships to mentor small businesses into contracting Align with section 1260H that Congress passed years ago that provides clear supply chain risk guidance. Empower small businesses with advocacy and pathways for market access.
▶ 0:52:08Build trusted and transparency tools to map supply chains and risk identifications early. Coordinate with small business office administration offices to ensure national security while fostering innovation and launch educational initiatives for small businesses so they know how to navigate these programs. It's not complicated. Everything that I've identified there as kind of mentioned in others' comments are pieces across this chessboard that we haven't tied together. Implementing them are easy.
▶ 0:52:37We have to move from policy to action and that's what's slowing us down. United States is known for innovating and China is known for duplicating. We have to cease that. We have to get ahead of their actions. Closing here, as you know, Main Street is increasingly vulnerable to Chinese Communist Party efforts to target American small businesses and steal intellectual property. So, my question would be based on your experience, what was the most common methods used to obtain intellectual property from American small businesses?
▶ 0:53:09Mr. Chairman, thank you for the It's a great question that that should be studied further. In my experience, cyber attacks are are the most The second I would say is insiders and it's leveraging programs such as Thousand Talents. And following that, it is engagement through venture firms. And even the process of doing due diligence from a venture firm when they're learning about a startup is a siphon of intellectual property theft.
▶ 0:53:39So, small businesses today are it's multi-vector. It comes through coercion at times on insiders as well. Under the 2017 Chinese intelligence law, PRC nationals have to cooperate when they are asked to. So, that threatens American workers who happen to be PRC nationals. Okay. Thank you very much and now recognize that my time is up and now recognize the ranking member for 5 minutes of questions. Thank you, Mr.
▶ 0:54:07Dr. Doshi, how do differences in the US and PRC's political economies affect our bilateral tech competition? Thank you very much for the question. China is a non-market economy. It has enormous amounts of state support and coordination to support small companies and big companies alike. And that means that oftentimes their companies can stay solvent longer. They're not targeting profit, they're targeting market share than our companies which either need to get loans or are disciplined by our capital markets.
▶ 0:54:37So, they can just stay in the game longer and throw more money at the problem than we can. And they have the government as their ally in the competition with our companies. It is no secret that the PRC's dominate the supply chain for import important items like pharmaceutical precursors, which we saw on full display during the COVID pandemic.
▶ 0:55:01Why it is in our national interest to ensure manufacturing for strategic techs and their parts? Thank you for the question. We did see that China weaponized its unique role of the rare earth minerals and magnet supply chain. The total amount and value of the rare earth minerals we import is less than the price of an F-35. And yet it supports more than 20% of American economic activity. If you take pharmaceuticals, 90% of fermentation-based API, that is antibiotics, are made in China.
▶ 0:55:30If we don't bring some of that back or have it come from our allies and partners, China has a chokehold over our healthcare system. And how do President Trump's wars affect small businesses' ability to onshore and compete with the PRC competitors? On the one hand, the tariffs can create some protection from the PRC. But on the other hand, they also raise the input costs for many companies that require importation of of all kinds of inputs for manufacturing.
▶ 0:55:59As a direct result, they may be less competitive globally and we are seeing a lot of strain among small medium manufacturers as a direct result of higher costs. Our biggest strength is our ability to draw and keep the best minds in the world. This help us drain the PRC's expertise and use it for our interests.
▶ 0:56:21Last year, committee staff released a report finding that President Trump's mass deportation campaign is hurting this strength. Mr. Chairman, I ask unanimous to put the report in the record. How does the Trump crackdown harm our tech I think there is a risk that some of the immigration crackdown will reduce the flow of high-skilled entrepreneurs from abroad into the United States.
▶ 0:56:50And a lot of our most innovative companies are a mixture of American homegrown talent and also foreign talent. We are only 300 million people. China is 1.4 billion. Our superpower is the ability to attract the very best from around the world and have them enhance our tech ecosystem. Thank you. And the SBA, Dr. Doshi, just made sweeping lending policy changes banning small businesses from SBA loans if they have any foreign investor stakes.
▶ 0:57:19And the notice names PRC nationals without justification bringing constitutional concerns under the 14th Amendment. Mr. Chairman, I ask unanimous consent to put in the record my letter to the SBA detailing these Do these unnecessary restrictions constrain capital access for American entrepreneurs?
▶ 0:57:46I think a lot of foreign nationals from a variety of countries can do a lot of good in the United States. Some PhD students from abroad from India or China or Japan, when they're here, they can launch innovative companies. We shouldn't deny them capital just because they're foreign citizens. And as for the China question, there are real concerns about security and espionage. We also have to implement this policy in a way that doesn't undercut our innovation advantages. Does it hurt small manufacturers' ability to onshore?
▶ 0:58:12I think it does because that foreign talent will often, as President Trump has himself said, actually help us reindustrialize the country, for example, in areas like batteries. And does it incentivize them to seek more risky foreign capital? I think that's an important point. If you can't access capital from the SBA, you may end up trying to get capital from less trustworthy foreign sources including China. Mr.
▶ 0:58:39Lyons, the prime way to monitor for and address suspicious and fraudulent activity in our federal research programs is through their built-in watchdogs, the offices of Inspector General. Should they be fully funded so that they can be at their greatest strength? And in some cases, some of the agencies do not have yet an OIG.
▶ 0:59:11Your mic. Ranking member, thank you for the question. I see I'm out of time. However, I think that any initiative that provides more of a capability to allow us to do research and background on individuals, programs, companies to determine and detect their connectivity to the PRC is is a program I would support.
▶ 0:59:31Thank you. Gentle lady yields back. I now recognize Mr. Meuser from the great state of Pennsylvania for 5 minutes. Thank you, Chairman. Thank you all. [clears throat] very compelling testimony. Uh just just to start out, let's face it.
▶ 0:59:47The the advantage that was provided over 20-year period to China's products being shipped into the US versus where we are today, very much thanks to the courage of of President Trump to rethink tariffs and focus on fair trade, not just free trade, has more advantages and benefits than negatives.
▶ 1:00:11Um that being said, this is some uh real serious uh conversation taking place here. Um I'm not new to it. I got a relatively extensive uh business background on the international front, as well. Uh but what I'm interested in in hearing from you all, uh is what can Congress do? Many of you have outlined this in your in your testimony.
▶ 1:00:34I mean, in real terms, advice on recognizing the risk beforehand, so we could hopefully share that with in our promotion communications. And once you are under attack or being in injured or harmed, who you going to? Who on the Who in our federal government, state government, uh is it FinCEN? Who's helping you? The Uh the SBA? The FBI? I mean, you know, you're really under under significant assault. But Mr.
▶ 1:01:05Murphy, uh with your business and others. So, Mr. Pahuski, let me just start with you. Can you and you and you were outlining, and we really want to get those those 10 items that you had, as well as the four that you included in your testimony. But what um what can Congress do and perhaps advice on recognizing, if you would. Well, thank you, sir. It's a great question. I think it starts with accountability, right?
▶ 1:01:24The executive branch has the authorities to execute the intent and everything that's been discussed here, but shifting away from offices that concentrate on small businesses policy makers and and and shifting that to action doers, right? When instances occur like Mr. Murphy's, they need advocacy at the point of the problem. And that's a long problem span, right? Far left is, "Hey, where can I find trusted capital?" Right?
▶ 1:01:50If you're working with the DOD or the DOE potentially in his instance, that would have an advocacy role, they should have a list of trusted providers of capital providers that he could have access to, so he doesn't have to guess and blindly navigate that course. That was a policy and a and an instrument that had started in the DOD that I was familiar with about 8 years ago and has slowed, right? That's something that needs to pick up pace. Um and it's not slowed during the current administration.
▶ 1:02:17It's slowed over time because it's lost priority and focus to other things. But having trusted capital programs do do an amazing job to avoid what he did. The other part I'd advocate for is understanding the supply chains, right? If you're not being bartered and and traded through trusted capital to undermine your company, it's through the supply chains that make you less attractive to to the DOD or other institutions that you'd work with, right?
▶ 1:02:43So, illuminating those supply chains, not just identifying the bad ones, but providing lists of trusted vendors and sources is also a critical step in this.
▶ 1:02:51That's great. I I I have limited time. Mr. Murphy, what what would you say? What sort of help would you would like to have had from the federal government? And um what else could Congress do? Uh yes, thank you, Mr. Chairman and to you, Representative. The big thing from the onset was we didn't know we didn't even think about the SBA as an option for capital. It Why would we get a loan? So, having hybrid and equity options that are meaningful.
▶ 1:03:18So, for a business like we needed 10 to 15 million dollars to secure the project. We'd already raised millions, but we needed more. So, it's that hybrid and equity option at larger amounts. And that was what really led to my recommendation thinking, "We're doing this in critical technology, really primarily defense right now." I think it's the SBIC critical technology initiative. There's a good amount of capital there, but there's nothing in health care, right? There's nothing in these parallel industries that helps us access that.
▶ 1:03:48Uh and then the other piece with the lawfare, I have a few notes here that things like debarment or sanctions, but but tricky in the middle of the litigation or fast-tracking relief in some way to DOJ or Commerce or the trade representative. But once it [clears throat] got to the point of the lawfare, I it was hard for Congress or or this body to really help us. We were in the judiciary. Yeah. Uh thank you.
▶ 1:04:18Mr. Lyons, somewhat the same question. If you could respond relatively quickly. And by the way, Mr. Doshi, your testimony was outstanding. All your testimonies, I want to make sure I get to the right people at the SBA. Your information is really really critical to uh our our economy. But go ahead, Mr. Lyons. I got 5 seconds. I would I would commend uh Congress for recently passing the cyber reauthorization, which includes due diligence standards in there. That's that's an immediate thing. SBA should have funding to provide threat briefings to small businesses.
▶ 1:04:48The biggest problem today is that most companies are simply unaware of this issue. Also, states like California uh prevent due diligence from occurring without providing that diligence to All right. My time is run out. I yield back. Thank you, Mr. Chairman. Gentleman yields back. I now recognize Mr. McGarvey from the great state of Kentucky for 5 minutes. Thank you, Mr. Chairman, and thank you for having this really important hearing today and to our witnesses for joining us. I'm going to start with you, Mr. Pahuski.
▶ 1:05:14Um your business has been active in SBIR STTR since 1988. And not just active, but I mean, received tons of awards, I think something like 30 awards or more through the program. And just how have you seen this vital program support small businesses and promote American innovation? Uh I want to be careful on my testimony cuz I'm not representing my company nor the awards that they have received through uh fair and competition.
▶ 1:05:39But Systems Planning and Analysis and probably is is considered an expert in the industry understanding exactly where threat factors are coming from and how to provide that strategic counsel and advice back to the government to avoid things uh left of launch, if you would, that Mr. Murphy and other Americans have experienced. Yeah, no, I I appreciate that. And uh this is an example of sometimes, you know, if you're watching this place from afar, you think the fights are between Democrats and Republicans often times. And sometimes uh in this place, fights come between the House and the Senate.
▶ 1:06:08And this is an example of where the House, uh all of our colleagues here, took this incredibly important program, SBIR STTR, passed it, and then it was not just the Senate Republicans, really it was one Republican Senator with a bone to pick that held this entire process up. And now it's effectively been shuttered for 6 months. So, they finally came to their senses over there on the other side of the Capitol and reopened the program.
▶ 1:06:36But of course, now that we've passed the bill out of both chambers, the President has said he is not going to sign any more legislation until he sign until the SAVE Act is passed. So, this important work remains on hold. And I just say it's important work because as we have this conversation, this really really important conversation. Mr. Lyons, I appreciate a lot of what you had to say about the threat that the PRC and the CCP is posing to Americans, to America, and in particular, American business interests.
▶ 1:07:05Um we need to have programs like this funded that are helping our own small businesses continue to have an advantage, continue to grow, continue to invest in products and people across the United States. Um so, uh we need the President to sign this. We need our small business to get help. We all need to to work on this. And I just want to, you know, end on end on a little point. Um Dr.
▶ 1:07:27Doshi, is it easier to address how China is harming our small businesses from IP theft, uh from coercion, from manipulation, if we go it alone, or if we go at it with our allies? Well, thank you, sir. It's a great question. And what I'd say is that right now, China outscales us in many dimensions. They're twice our manufacturing capacity, three times our power generation, 11 times our steel production, 20 times our cement production. But if you take the US and put its allies and partners together, we outscale China.
▶ 1:07:57Anytime we want to make progress, we are stronger if we do it with our friends, and the Chinese simply cannot match the scale that we have together. And and that's why I think this hearing is so important. That's why it's so important in this committee where we still do come together and do good work. We have some real threats we have to deal with. We are not going to be as successful if we continue to fight ourselves and fight our allies when we should be taking on a common enemy. So, I appreciate you guys bringing that point up. And Mr. Chairman, I yield back.
▶ 1:08:26Gentleman yields back. I now recognize Mr. Weed from the great state of Wisconsin for 5 minutes. Thank you, Mr. Chairman. Thank you to the witnesses for being here today. The Chinese Communist Party is no longer an emerging threat to our national security. They have a calculated and well-developed plan to infiltrate our educational institutions, internet data, military installations, and our nation's economy.
▶ 1:08:52Many of these threats are more overt than others, but the CCP's infiltration of America's small business is a problem that is not always discussed. The threat from the CCP to small businesses ranges from intellectual property theft to CCP-linked investments. However, small businesses often lack the resources to protect their company and the products they have poured their time into. I look forward to discussing these issues with all of you here today. Mr.
▶ 1:09:19Pahuski, what are the current gaps uh that small businesses face when seeking that um allow CCP linked investors to access this sensitive information. I don't know if it's a lack of access to capital, but it's a lack of awareness once they have access to it. And that really means the speed of relevance. In Mr. Murphy's case, I would dare say that he was under time pressure to make something happen because the deal, you know, would would close in a certain period of time.
▶ 1:09:49Not having the ability to do due diligence, one because of the cost, the other because of the education, do I really need to do that? And those two worlds intersected at the point of decision making. And that's not months and weeks, that's hours and days at the most, right? And so we're left across the spectrum of of seeing these type of instances because we don't have advocacy within the government that's a clear path to solutions for these small businesses. We need to do better. Well, this would be Mr.
▶ 1:10:17Murphy, how about what what are some ways that small businesses in your from your experience having gone through this that can protect themselves from CCP linked investors? Mr. Chairman and to you representative, we talked about expediency, right?
▶ 1:10:33So access to capital, these are we've talked about these, but access to capital and then the nature of that capital, equity, hybrid versus just debt only and then the amount of that and the ability to have due diligence diligence as a part of that, but working with funds and particularly funds that are leveraged with the SBA program that that are trusted, that are safe.
▶ 1:10:58Many of these venture capital funds in Silicon Valley they're not they're not they're they're gathering IP. They have relationships with attorneys and many of the law firms. I'm using Silicon Valley as an example cuz that's one that everybody is aware of, but that that's the nature of it.
▶ 1:11:15So it's it's having what I would call safe, protected, trusted funds and resources that are part of the diligence and that also have leverage to help on entrepreneurs and businesses move how do we do that? How do we help you and I'm going to just basically open this up to anybody. How can we help you in that regard? And here in Congress. I I would say briefly improving, updating, upgrading the SBA program.
▶ 1:11:45I learned here from Miss Orputsky that there are actual offices like there's a a Department of Energy SBA office. I we didn't know that. That would have helped to know, but but working and moving capital and options to apply for that into the agencies to help it move Mr. Lyons, you Thank you, sir. I do think awareness is a big part of this. I also think that state laws create the discrepancy in being able to actually conduct things like due diligence.
▶ 1:12:14And I brought up briefly the California statute, not picking on California, it's just we come across a lot of companies based in California and the statutes are currently currently favored towards privacy versus background research on people. And when you're running a critical technology like AI or quantum where where it makes a different it is a zero-sum game, we need to be able to facilitate that.
▶ 1:12:40So I think federal preemption on that issue, but also federal tax credits to allow companies and small businesses to do this is would be important. Mr. Doshi. Thank you, Congressman. I'll just offer two quick points. First, we have to protect ourselves, which means that I think we need to strengthen due diligence. That in turn means that we basically should think about corporate transparency act beneficial ownership because knowing who ultimately owns some of these companies that are investing in the US is critical and that's the hard part of due diligence. We can fix that and it also by the way will help combat fentanyl money laundering.
▶ 1:13:09The second thing we should do is is promote and that's access to more capital from the SBA for our high-tech companies. Promote and protect together are the way we do this. Thank you, sir. All right, thank you witnesses for being here today. I yield back. Gentleman yields back. I now recognize Ms. Simon from the great state of California for 5 minutes. Thank you and thank you all. Today has actually been extremely informative. I have a question for Dr. Doshi.
▶ 1:13:36Last the House sent a bipartisan Small Business Innovation and Economic Security Act. And the act, as you know, it reauthorizes Small Business Innovation and Research and Small Business Technology Transfer programs to the president's desk for signature. I am curious what's the significance of these programs on tech leadership our tech Thank you, Congresswoman.
▶ 1:14:02The SBIR program, as I recall, has done over 70 billion in loans over the last 40 years almost, including many iconic American companies that have benefited. Right now, the Chinese are putting billions and billions and billions of their small companies. The fact that we've had a 6-month lag and and hopefully that'll be cleared up very soon puts us at a significant competitive disadvantage when it comes to small businesses relative to China. That's a disadvantage? Yes, ma'am. A competitive disadvantage. Can you say more? Absolutely.
▶ 1:14:28I mean, right now the Chinese small companies, the so-called little giants companies are able to access tens if not more billions of dollars in low-cost capital. The fact that our program is paused means that every small company in China that wants to win in manufacturing has yet another advantage now over us, which is access to cheaper funding.
▶ 1:14:44And just so the public understands, they're these small Chinese companies are able to access this capital from the the party. So they're able to get it
▶ 1:14:52getting it from? Yes, ma'am. From the state and as well from the private sector on with the state backing it. And so right now we're pushing pause and the Chinese are pushing go through a multiple funding channels. So should this act be signed by the president? We have no idea what that implementation would look like. So what are tech companies and leaders and innovators doing in in the whim while they wait? Well, for small companies, access to capital is a challenge, especially now with so much capital going to the data center buildout. That's crowding out capital for smaller companies.
▶ 1:15:21So as we hear, they have to take capital from less trustworthy sources. They have to take it on less preferential terms. They may have to give up more equity, take more dilution. That's not great. And one of the great things about the SBA program is it doesn't do any of that. It's not dilutive, for example. So we should get that program restored, otherwise companies may make poor choices for the long-term competitiveness. In lieu of who knows what that calendar will be and when the act will be signed by the president, we hope it will it will be. Any advice to this committee on how to how to push the conversation forward?
▶ 1:15:51Well, I think hearings like this one are useful because I do hear some bipartisan support for the idea that our small companies need low-cost non-dilutive capital to lead in high-tech. That's a view I think most Americans would support. And I think at the same time when you understand the full scope of what China is up what they're up to and that's why I focused that on my testimony, what they're doing, it it makes all this look a lot more urgent. It's a lot harder to say let's push pause when you see tens of billions of dollars flowing to small companies in China. They are very serious about promoting these small companies. And let me be very clear.
▶ 1:16:20Their goal is to ultimately knock our companies out of business. They don't want them to be selling into China or selling around the world. They'd like their companies to win. And so it really is an existential question. We've got a lot of small companies in manufacturing. They are the backbone of American manufacturing. A lot of them are run by people who are about to retire. If those companies go out, we lose not just the companies, but the knowledge that those companies held onto for decades. It would be much harder for America to reindustrialize, which is the president's priority, if we lose those companies.
▶ 1:16:46So it never happens to me, but I have a whole 1 minute and 39 seconds left. And I know a lot of my colleagues are in other hearings. This hearing, as our chairman mentioned, is literally on top of a number of other hearings on the floor today. So if you could, Dr. Doshi, for the next, you know, 35 seconds and then I'll yield my time back to the ranking member, I would love, you know, I know other members had other questions for you.
▶ 1:17:12So Is there are there other thoughts that you would like to extend to the committee? Yes, ma'am. I think the last thing I'll say is that one of the things that China's done very well is it's packaged a lot of these benefits together. Supply side benefits, demand side benefits, regulatory benefits. It makes it much easier for companies to have a one-stop shop. The Taiwan economic ministry does the same thing, by the way. So a lot of our competitors, a lot of our allies, have programs that are very integrated. Presenting a package of goods, a package of benefits to these companies. It's not all about spending money.
▶ 1:17:42Can make their lives easier and can make it so that they're more competitive. That's how the Chinese do it. It's again how our allies do it. It's how we can do it, too. And I think we should think about the SBA having a credentialing program for high-technology companies so we can better incentivize the flow of capital. And think about this. A company that gets that designation, as in China, will be a much safer bet for the private capital markets, too. I think we can do Thank you, sir. I appreciate all of you. I'll yield my time, my third whole 30 seconds, back to the ranking member. Thank you, ma'am. Thank you. Gentleman yields back.
▶ 1:18:11Ranking member has nothing. I now recognize Ms. King Hines from the Northern Mariana Islands for 5 minutes. Thank you, Mr. Chairman, and thank you to the all the witnesses for your testimony today. So as the chairman has stated, I represent the CNMI, which literally sits on the front line of a lot of this strategic geopolitical conversations.
▶ 1:18:35And you know, for those who are not familiar with where the CNMI is, we are closer to China than we are the United States. And so you know, my community is struggling economically. I'm concerned about any type of foreign investment coming in into the CNMI.
▶ 1:18:52As a matter of fact, we have been having conversations with the legislature as to how do we um provide the necessary support to the local government and connect them with an entity like CFIUS CFIUS, for example, Because, you know, we ardently object to malign CCP influence, right? And I'm really glad, Mr. Lyons, that you distinguish between, you know, regular folks and and the regime, right?
▶ 1:19:20So I appreciated that and I kind of in reading your your testimony, Mr. Murphy, you know, you I was sad for you. And I don't want that has happened to you to happen to any small businesses, especially folks out in a remote region where we you know, the government doesn't have the resources and and just folks doesn't have the resources, right? And I I kept hearing a common theme amongst all of you. And that is due diligence.
▶ 1:19:49And as I was preparing for this this um I I um saw that there is no connection between the S- SBA who, you know, is in charge of lending capital uh with CFIUS under the Department of Treasury. And so, I kind of wanted to further flesh out uh you know, that piece that you focused on with regards to due diligence so that we prevent what happened to Mr. Murphy. And I'll just open it up. Um maybe I could take that.
▶ 1:20:20I used to be the DOD's lead representative for CFIUS, so I'm very familiar with the authorities that are granted to that. Uh that is not I I would say the appropriate tool at that part of the spectrum. CFIUS is typically reactionary to some some degree because those transactions are being brought The problem is well left to that. It's when we talked about when small businesses are faced with the capital decision, partner relationships, equity decisions. That's really at the point of no return where the decision making needs to happen.
▶ 1:20:49CFIUS is a great measure to protect things through the national security lens, but maybe his transaction didn't present a national security threat. And therefore, it might not necessarily be reviewed through those authorities. So, I I I asked that question because any investment uh right now in in the scene of my is viewed as a national security threat if it's a foreign investment. And and I want to be able to help my community given the fact that we're just going through an economic decline. As a matter of fact, it's I think it's an economic free fall at this point.
▶ 1:21:19And so, I think you're absolutely right that that CFIUS is reactive. How do we change it? And and so that we ensure that what happened to Mr. Murphy doesn't happen because CFIUS is is the arm of the federal government that's supposed to review foreign investments for national security risks. And so, how do we bridge that gap? And and I see Mr. Lyons there nodding his head. Uh Thank you, Congresswoman.
▶ 1:21:45Um [clears throat] I think that it's it's a complex problem, but one thing to to address first is that there's nothing illegal about PRC investment into companies. And so, that means that our law enforcement mechanisms have no tools here. Um it does require it does require background checks, due diligence, and I don't think it's always appropriate for the government to be involved in that because the government simply doesn't collect on these issues. As a former intelligence officer, we focus on bigger bigger things, I would say, on on weapon systems, plans, and intentions.
▶ 1:22:15We don't focus on mergers and acquisitions or really much in the economic realm. Uh so, for that reason, there has to be partnerships on that front. I think SBA pushing out threat briefs could could help. I think tax incentives. I think tax credits to allow companies to take advantage of that from a tax standpoint so that they can build a CI program or a cyber program. There's a limited amount of funding available from the SBA today that goes towards funding cyber programs, and we need to expand programs like that. Thank you, Mr. Doshi.
▶ 1:22:43You can chime in for the rest of the time I have.
▶ 1:22:46Congresswoman. Let me just offer one additional point because I agree with every what everyone else has said. I think there's some value in helping small companies recognize that if they take investment from Chinese sources and they're in their cap table, it might make it a lot harder for them to get access to certain government benefits, for them to sell to the Department of War, etc. And I think getting people to understand that there's a risk, not just a legal risk, but a reputational risk potentially, and having these investors is critical. And I'll end with this. We need corporate transparency. We need to know the beneficial ownership of some of these vehicles.
▶ 1:23:14If we know that, we can do better due diligence in the open Thank you. I yield back, Mr. Chairman. The gentlewoman yields back. I now recognize Ms. Scholten from the great state of Michigan for 5 minutes. Thank you, Mr. Chairman. Thank you, uh Ranking Member. And thank you so much to our witnesses for being here today.
▶ 1:23:32it seems like our our questions this morning have have kind of been going back and forth uh and and questioning to a certain extent whether China actually is a a problem or trying to point out how it is. I think we all agree China is a problem, right? You agree? You agree? Yes, all all heads are nodding. The question is, what are we going to do about it? Dr.
▶ 1:23:57Doshi, in your questions, you talk about the rapid pace at which China is in its small businesses. At the same time, we have seen major scaling back of our small business programs. Can we continue at the same pace and expect different results? to our entire panel. I mean, yes or no? Can we continue? No, we cannot. No. No, we cannot.
▶ 1:24:26I I I I think that this is the central question, you know, and and the oversight of this committee is if we take nothing more away, if we are all in agreement that China is a threat, we cannot continue at the same pace of scaling back our programs.
▶ 1:24:41Yes, there are other multiple things that we need to do, but but making sure that we are putting our money where our mouth is and addressing this problem head-on is is Um I have a few other questions um particular to to West Michigan, but I I really wanted to to emphasize that point. So, West Michigan is home to world-class innovation. I've had the privilege of touring small businesses in my district who are at the forefront of research and development that will enhance everything from medical treatments to new defense technologies.
▶ 1:25:11Many of these businesses were SBIR STTR award recipients. We had 11 businesses receive awards in 2024, four more recipients in 2025. I was proud to vote in favor of the SBI the Small Business Innovation Economic Security Act last week, which passed the House and would reauthorize those programs. With specific reference to these programs as we talk about the importance of investment, Dr. Doshi, how how will these programs specifically help our tech leadership? Well, thank you very much, Congresswoman.
▶ 1:25:41And as you know, of course, the Midwest is home to a disproportionately large number of our high-tech manufacturers, small businesses disproportionately. And so, I think for these companies, access to low-cost capital is a challenge. Bigger companies can get better terms from big banks. Our smaller companies struggle. They may not be as well-known. They're not as credible, perhaps. They've got other challenges. The government can step in as they do in China, but it doesn't have to be a big cost to the government. That's the benefit of some of our programs. And if you look at the track record, our our programs tend to do quite well that they end up creating huge economic benefits.
▶ 1:26:10Sometimes even major companies emerge from SBIR and STTR. So, I think the the question for us is, do we want to support these companies in high-tech? Because if we don't want to support them, China's going to support it. So, we have to get even with them. That's exactly right. Thank you. Um Dr.
▶ 1:26:24Doshi, your testimony uh highlights uh I want to talk about small manufacturers and exporters uh specifically who rely on technical assistance to build up and keep an edge over their overseas Um the the um MEP program, my district has benefited significantly from the state's work there.
▶ 1:26:44The Michigan Manufacturing Technology Center uh in in addition, in the past 3 years, MMTC has assisted 145 manufacturing companies just in my district alone. 145 impacting over employees. I mean, the impact is is just so huge. And I I know Michigan is uh you know, a a little outsized there with our, you know, our huge auto manufacturing sector, but this is this is a big deal to us.
▶ 1:27:11Moreover, MMTC is working to establish a new AI lab to help keep Michigan ahead of the AI curve. Um Dr. Doshi, the Trump administration has withheld 19 million in MEP funding causing major staffing layoffs and hiring freezes within most MEP centers. How is this harmful to our domestic manufacturers? Almost goes without saying, but we're here to take the testimony today. So, so please do say
▶ 1:27:35Well, thank you, Congresswoman. I think it's disastrous. I mean, a lot of these programs are now seriously damaged. It'll take, you know, months if not years for them to scale back up again. I'm not really sure why. The president is very committed to reindustrialization. His team believes in reindustrialization. I think probably somewhere there's been a disconnect and the team that he has that cares about this should re- should make sure that these programs have the money that they need because the Chinese are investing, right? They do technical assistance, and we don't. They do technical assistance from their SOEs, from the universities, state research centers on an industrial scale. And we shouldn't pause ours.
▶ 1:28:04As as a state that is also home to some of the leading universities in the country, I worry about the brain drain, not from people leaving this country necessarily, but from not pursuing these advanced degrees in in technology because they're not seeing, you know, the the opportunity for themselves there as well. So, thank you. I'm I'm out of time. I I thank you all for for your testimony today. It's been, you know, incredibly helpful. Uh Mr. Lyman, especially appreciated some of your remarks. So, thank you, Mr.
▶ 1:28:34Lyons, excuse me. Yeah, thank you. Yield back. The gentlewoman yields back. And uh I think we have any more here in the Uh I'd like to thank our witnesses. This has been a great uh a great hearing. Uh and it's bipartisan subject we all agree with on 99%, I'm sure, maybe even But without objection, members have 5 legislative days to submit additional materials and written questions for the to the chair.
▶ 1:29:01And before I finish that, somebody from California just walked in.
▶ 1:29:06California time. You want to see another hearing. Yeah, and I I yield to the gentleman from Thank you, Mr. Chairman. Sorry, uh had a a briefing that I had to pop into and uh just got out in time and couldn't have my watch or anything or my phone or anything to let me know what time it was, so I got I am here now.
▶ 1:29:36So, uh thank you all for being here today and thanks for your time and I guess I'm the last one here before we can all uh you can all go. Uh but so, I'll be quick. Uh Mr. Doshi, the 2026 National Defense Strategy and National Security Strategy have shifted our focus as it relates to China. The NDS places an an implicit bet on out-producing China, but hardly mentions technology as you laid it out in your testimony.
▶ 1:30:02China is prioritizing its small business, particularly in manufacturing and technology. How should Congress scale and invest in programs that boost American small business in manufacturing and technology? Well, thank you very much, Congressman, for the opportunity to to to talk a little bit about that. My view is that uh the SBA has a number of tools. Some of them have lapsed and can be reauthorized. Uh and some of them can be expanded.
▶ 1:30:26In many cases, a lot of those instruments that the SBA has can be packaged together to give small companies a one-stop shop, so that they can get demand-side support, supply-side support, and regulatory support. But, the key point I want to emphasize is this. China takes its small businesses very seriously as manufacturing competitors. They gives them enormous amounts of resources. It gives them patent and support. Expedited access to stock market listings. And it even forces the state companies and its government to buy from them. We're not going to replicate their system.
▶ 1:30:52But, we have to put together a program that is not just individual projects and individual initiatives, but packaged together to make sure our companies are competitive. All right, thank you. Uh you mentioned the SBA, so the SBA is creating barriers for many small businesses to access resources. So, it's as changing eligibility for programs, threatening to pull offices from major metro metropolitan hubs, and withholding funds from programs and resources partners that support small businesses.
▶ 1:31:20Are these counterproductive to the investments we need to be making in our small business for their resilience in the global stage? Congressman, I do worry that some of the current efforts are counterproductive. In particular, as we've discussed in this hearing, some of the key programs have lapsed or have been reauthorized, but that has not fully gone through within the administration. That can change quickly. We know that the president is committed reindustrialization, so there may be a disconnect within his team, but it should be possible to make progress. As for you know, offices closing that are part of the uh MEP program, that is disastrous.
▶ 1:31:49I mean, when those offices close, it can take a long time for them to staff back up. In the meantime, our companies lose important connections to the assistance that they need. Thank you for that uh response. Mr. Lyons, uh you highlighted the lack of awareness and security by small businesses against cyber intrusion in your testimony. If a small business wanted to improve their cyber security, what federal education, legal, or technological resources are available to them? Thank you, Congressman, for the question.
▶ 1:32:18I think that the SBA has a uh cyber program that allows them to take allow small businesses to take advantage of some subsidized uh uh offerings there. I think that should be expanded. I think that CISA also puts out routinely updated information regarding how small businesses can protect themselves. A lot of this is free. A lot of this I think their tax credits would help bolster uh defense and bolster awareness.
▶ 1:32:44But, a lot of this is also out there on sites like CISA or the Yes, just one follow-up on that. I mean, the resources you said are free to be provided by CISA, SBA. But, when it comes to the actual financial cost of of having to fight this, how are small businesses able to to to keep it up? Or can they? Sir, they're not. Yeah.
▶ 1:33:06They they they simply uh in in conversations that we've had with numerous small businesses, often times economic espionage is ignored because legal costs associated. I would point to my written testimony of a few examples, but also of some possible legislative initiatives that could change something like that. Mr. Doshi, you're shaking your head yes, so I'll let you respond to that as well.
▶ 1:33:27you, Congressman. I just want to add one additional factor. When our company is the victim of cyber espionage and they lose their IP, that goes to a Chinese manufacturer who then makes the same thing and sells it back to us, it should be easier for us to stop the importation of that infringed upon export. Right now, it's really hard. Those small companies have to hire lawyers, they have to go through a process. We should make it easier for our companies to protect their IP from foreign manufacturers that have taken it uh essentially illegally. All right, thank you all for your testimony. With that, I yield back. Gentleman yields back. I now recognize Mr.
▶ 1:33:56Breznay and from the great state of Pennsylvania for 5 minutes. Thank you, Mr. Chairman, to the ranking member, and thank you to our witnesses for being here today. The influence of the Chinese Communist Party is no longer something we can ignore or afford to underestimate. It is a real threat to our economy and everyday life happening right now, and our small businesses are on the front lines. The CCP knows exactly what kind of leverage it holds, and it is not afraid to use it.
▶ 1:34:23Whether that means undercutting American businesses, stealing intellectual property, or flooding our markets with cheap and inferior products. COVID-19 made that crystal clear. It exposed just how vulnerable we are and how reliant we have become on China to keep our economy and supply chains running. That should have been a wake-up call, but that dependence still exists today, and it remains a direct risk to both our economy and our national security.
▶ 1:34:48That is why this committee must continue working with the administration and the SBA to bring manufacturing back home and prioritize American production over CCP That starts with being clear about what the CCP involvement means for our American entrepreneurs and their intellectual property. Starting a business is already a heavy lift. It takes risk, capital, long hours just to get off the ground. We've seen it happen too many times.
▶ 1:35:14An American entrepreneur puts everything on the line to build something from the ground up, only to have a CCP-linked company steal that idea, copy it using cheap labor, and flood the markets with knockoffs that undercut them at home. That is unacceptable and a fundamental threat to the American dream. We have a duty to protect American innovation from that risk. Mr. Murphy, you know the reality of the situation all too well, and what your company went through is something no American business should ever have to face. So, my first question for Mr.
▶ 1:35:43Murphy, looking back now, what would you tell a small business owner who is considering taking on foreign investment, and what do you wish you had known before making that decision? Mr. Chairman and Congressman, we've talked a little bit about this. Obviously, due diligence, expedient access to capital, the type of capital. And the one theme that I've heard here from the panel that I think I just want to highlight is this.
▶ 1:36:09I I don't and I don't know anything about the Little Giants program in China, but something similar. I mean, we're we're our model is free markets and competition. It's not outside of our SBA to have a packaged up competing program where an entrepreneur or business like mine can feel confident uh and empowered to go to the SBA and have this package of diligence, access to capital, trusted vetted capital partners, and the like.
▶ 1:36:37That seems like something we can and should do to compete. Uh at what point in the process, Mr. Murphy, did you start to feel that something was wrong? Or what was the first indication that uh you had some kind of China influence taking over your business? Was there like an antenna moment or an aha moment that caught your attention? Congressman, yes, there was.
▶ 1:37:02There was as we were breaking ground one day, several individuals just arrived at the site. They showed up at the gate. They wanted to be seen, and they said that they had come over from Asia. And then once we started putting the the pieces together, we realized uh no, they came from China. And who were they? And then it got back to and we heard this term from Dr. Doshi, who who is the ultimate beneficial owner?
▶ 1:37:30We did not know, and it turned out to be somebody different than the people that were on site, and it turned out to be the person who had sent these individuals. So, it was that when they showed up uh that totally unannounced. And you had And that's when I said and I said, "Stop. Something's going on here." And that's when I in my mind started realizing there is a something afoot. And then more came.
▶ 1:37:53And then when Bitcoin miners showed up, this, you know, millions and millions of dollars of Bitcoin mining machines showed up just on a dime. You know, 30 trucks boom into Cheyenne. That's when I said, "We're going to start documenting." You know, every email, every conversation. And then it was shortly after that that they said, "Hey, we want to renegotiate our contract. Basically, you guys go from your operational role and our contract that was this to a very small role, and basically be our Wyoming guys to protect us in the state." And that was when we we sued them.
▶ 1:38:23That is absolutely abhorrent and unacceptable. Uh one more follow-up question. What could we be doing in Congress to prevent things like this from happening in the future to other entrepreneurs and other Yes, Congressman, we've we've heard a lot of those good ones ideas today in testimony, but I think it goes back to and I think with this committee, it's the SBA, right? That That's where entrepreneurs right now as an entrepreneur, I wouldn't even have thought to go to the SBA.
▶ 1:38:53To get a loan, to get a $10 million debt loan doesn't make any sense. But, for that to be a resource that entrepreneurs and small business can turn to that actually helps with capital, diligence, and all these pieces, that I think makes the Thank you for being here, Mr. Chairman. I yield. Uh gentleman yields back. Uh I now want to repeat myself and say what a great uh hearing this has been.
▶ 1:39:15Thank you guys for taking time to do that and without objection members have 5 legislative days to submit additional materials and written questions for the witnesses to the chair which will be uh, forwarded to the witness. I ask the witness to please uh, respond promptly. So, if there's no further business without objection the committee is adjourned and thank you again.