WASHINGTON, D.C.—Congress may soon require government agencies to vet tech startups seeking federal funding, after a Defense Department study found China is exploiting a popular program that funds innovation among small American companies.

The study, which was viewed by The Wall Street Journal, found China is using state-sponsored methods to target companies that have received Pentagon funding from the Small Business Innovation Research program. The SBIR program for decades has sought to promote innovation through a competitive U.S. government award process.

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