This makes me wonder: China was poised to beat the US in the AI race, why .. why is it that with all their resources and government backing did a llm of chatgpt's magnitude and capability not materialize in China first?

They have true cost advantage in data labelling. So if it comes down to large scale labelling for commercialization they may lead again. As for AlphaZero type of algorithmic breakthroughs, unless Chinese government and corporations are willing to fund that kind of work I don't see why they should lead there.