China's biggest challenge ATM is that they do not yet economically produce the GPUs and RAM needed to train and use big models. They are still behind in semiconductors, maybe 10 or 20 years (they can make fast chips, they can make cheap chips, they can't yet make fast cheap chips).
i dont believe they're as behind as many analysis deems. In fact, making it illegal to export western chips to china only serves to cause the mother of all inventions, necessity, to pressure harder and make it work.
You don't need the most efficient chips to train LLMs. those much slower chips (e.g. those made by Huawei) will probably take longer for training and they waste more electricity and space. but so what?
Look at how competitive chinese EVs are, and no amount of tarriffs are gonna stop them from dominating the market - even if americans prevent their own market from being dominated, all of their allies will not be able to stop their own.
LLMs will become the ultimate propaganda tool (if they aren't already), and I don't see why governments wouldn't want to have full control over them.