Tech Startups Seeking US Funding Could Be Vetted After Pentagon Uncovers Chinese Exploitation

Congress may command government agencies to vet tech startups looking for federal funding in the near future, according to a Wall Street Journal (WSJ) report Sunday (May 8).

The report said a Department of Defense study found that China is exploiting a popular program to fund innovation among smaller American businesses.

China is reportedly using “state-sponsored methods” to target companies with Pentagon funding through the Small Business Innovation Research (SBIR) program, which has tried to promote innovation through competitive government awards.

According to the report, there were several instances of program participants who “dissolved their American companies” and joined Chinese government talent programs, instead working for places that support the People’s Liberation Army, an armed wing of the Chinese Communist Party.

The WSJ wrote that there’s been instances of SBIR recipients taking venture capital funds from Chinese state-owned firms, and others where they worked with Chinese entities that “support the country’s defense industry.”

According to the report, there needs to be a review to make sure the SBIR program can identify entities of concern which need a bigger review.

Lawmakers are now reportedly looking into a five-year reauthorization of the SBIR, along with a related Small Business Technology Transfer program. Both are part of a “sweeping, bipartisan” legislative package going through Capitol Hill, which will try and boost the U.S.’s competitiveness against China and other places.

PYMNTS wrote that, in other news about China’s interactions with other global powers, Chinese tech companies have been quietly backing away from doing business with Russia, as the latter country continues its war in Ukraine.

Read more: Chinese Tech Firms Quietly Moving Business From Russia

China initially said it would sit out sanctions against Russia, and a recent directive from the government said businesses should not bow to U.S. pressure or pressure from other places. However, several big Chinese companies have been “quietly cutting back” on shipments to Russia, where they have the biggest market share for several products.