That's simply not true. There are numerous problem domains in AI where Chinese research groups are advancing the SOTA, or at least are well-presented at the forefront. Your comment reads like little more than casual racism to me.
It's just those authors overwhelmingly work in the United States, and rarely in other allied countries. Perhaps the highest-cited ML paper that can be attributed to Mainland China is still affiliated with Microsoft [1].
The fearmongering is miscalibrated, whether it be about PRC-developed AGI or about Chinese people stealing our tech. To a great extent, they are building it.
Native Chinese development, on the other hand, is exactly like OP says, incremental and constrained to internal-policing-related niches like face recognition (actually that's pretty much it). They also opensource pretty powerful models [2], [3], so that's nice of them.
But nothing seriously game-breaking.
1. https://arxiv.org/abs/1506.01497