The way I see it, this problem will solve itself. People do not enjoy having to copy others. Historically, countries have done it to get to a comfortable state, then it stops once they're comfortable. The biggest example being Japan.
You cannot watch older Japanese animations and not see the heavy inspiration from Disney, but the style used in their shows today is far evolved. You equally cannot sit in a Toyota and not see the western influence. Travelling to America was literally part of their game plan to improve their own technology though at first it was for investigating automatic looms [1]. I would be surprised if Toyota did not reverse engineer a western vehicle. Today however, I imagine you need no convincing that Toyota is simply the superior product compared to its western counterparts and can stand on its own two feet.
Your counter argument might be that it's different with China because the government is assisting in this. To that, I would point out the Meiji Restoration in Japan. Similarly, their government encouraged young scholars to learn abroad in order to pull Japan forwards technologically. Not only that, the government hired foreigners known as "O-yatoi Gaikokujin" and " the main goal in hiring the O-yatois was to obtain transfers of technology and advice on systems and cultural ways." [2].
That last one sounds a lot like a government-funded technology transfer to me. It's definitely not happening today in Japan, but at one point the government deemed it necessary.
I agree on the point about BYD. We would definitely see the result of a technology transfer in a BYD car. But how much of that can just be attributed to hiring talent from foreign companies? There are articles about Japanese engineers being headhunted by Chinese automakers [3]. This is common in developing countries. A lot of top positions/ executives are senior engineers coming in from abroad getting a significant title bump and pay increase (the pay increase is even greater if you consider the cost of living in the host country).
If you consider headhunting talent to not be competing on equal footing with the world, then that's a completely separate discussion. But I wish to provide more peace of mind for you that this problem is indeed transitory. To do that, I will direct your attention towards the rhetoric used against minorities.
People say that minorities are criminals, but we know that's not true. It's poor people who are desperate enough to perform those acts who will turn to crime. Minorities get over-represented due to society being biased against them causing them to be in more dire financial situations. Nobody takes pride in being a criminal. The moment they are financially stable, they stop - 2nd generation immigrants have extremely low rates of criminal activity.
Similarly, China is still a poor country. We might not think of it because we think of Shanghai and Shenzhen, but their GPD per capita is lower than Russia's, and their HDI is lower than Ukraine's. As China develops, they will find more effective ways to compete that don't tarnish their image, just like other countries have done on their path of development.
My goal is not to debunk you. There are definitely some instances of shady IP dealings in China, but there are some instances that are clean as you have also pointed out. What I do want to get across though is that these are the growing pains of a developing country that successful countries also went through in the past.
People probably had this conversation about Japan when Japan was developing. They do not have them today. So too will we no longer have these conversations about China in the future.
[1] https://www.toyota-global.com/company/history_of_toyota/75ye...
[2] https://en.wikipedia.org/wiki/Foreign_government_advisors_in...
[3] https://asia.nikkei.com/Business/Automobiles/Japanese-engine...