Until it is not. They do have a huge internal market and easier access to rare minerals advanced chip manufacturing depends on. InHouse lithography equipment will improve, internal chip design will improve, material / IP / expertise will still migrate to China somehow. Their in-house CPU designs are still far from Ryzen / Penguin but far less than they used to be.
Thinking that somehow the West is magically going to always have the edge computing wise is a risky bet considering the corruption and market manipulation (some industries in need of anti trust action which is not coming) happening in major Western economies. Even if it were not a country like China, imagine the most democratic good and righteous country not called the US… if it were to surpass the US economically there would still be a reason to start a Cold War against (do we really think the US would accept any other country even indirectly being surpassed)… ok this was a bit of a long aside.
They have a gigantic barrier in front of them: EUV.
It took the combined investment and research of many companies to make it happen. Intel, ASML, TSMC, AMD, IBM, etc.
It was one of the most difficult and biggest breakthrough in chip making ever. And it took many years. The scale was enormous.
But China doesn't have the technology, the money or the people to make it happen. And there isn't other countries with advanced tech, that China can join for such a gigantic project. They sure won't get much help from Russia that is still stuck with second hand machines that make 28nm chips.
And without EUV, there is no way they can make anything bellow N7.
The machines that China has to make chips are either Japanese or European. And now they lost access to them.
Regarding their internal market, it's not very big. China is a huge exporter, but their internal market is comparatively small.
It is not enough to drive profits big enough to feed the development of stuff like EUV.
Rare earth elements are not as rare as the name implies. In fact, they are very common.
It's true that China has the biggest natural reserves or rare earth minerals. But the reason they export so much is not because they are the only ones that have them. It's because they don't have the same restrictions in wages and environmental laws as the USA and EU.
So they can flood the market with cheaper prices.
Up until a couple of decades ago, the USA was the biggest extractor of rare earth minerals. But their mines had to close because of competition from China. But this also means their reserves have been untouched.
Regarding their economy, what we know is that their numbers are very inflated. I have seen predictions that put their real economy at 2/3 to 1/2 of what China reports.
China also prints money like there is no tomorrow. But with the difference that the Yuan is not the global currency, so there is no market to absorb so much cash flow.
The reality is that China is a house of cards, that is only held up by a very tight grip from a totalitarian regime.
BTW, have you seen the new laws China passed about spying?
They already had severe laws against it, resulting in many Chinese and foreigners being arrested for small things.
But these new laws make it even worse. And the result is that fewer companies and people are willing to go to China to invest or work there.
This is one of the reasons why so many companies are now looking for other countries to have their factories.