That whole section seems to be pretty directly based on DeepSeek's "very impressive work" with R1 being simultaneously very impressive, and several months behind OpenAI. (They more or less say as much in footnote 36.) They blame this on US chip controls just barely holding China back from the cutting edge by a few months. I wouldn't call that a knock on Chinese innovation.
But it also assumes China would never really catch up to American chip companies. China is already investing heavily in chip R&D and things like RISC-V, I think it’s very plausible that lag window shrinks over this horizon. Perhaps even flipping given their much larger willingness to use industrial policy for goals they want achieved.
