I'll redirect you to the third paragraph here which addresses what China can do but probably shouldn't:
OMG! India got there first ever gold! Kai Hind crowd must be going wild! Credit where credit is due. Congrats to India.
www.sinodefenceforum.com
If China wants to be more competitive in team sports and rich people sports like swimming, it will need to nurture sports culture in its population. This will hinder its academic focus and its tech drive, which is the real competition, not a game. Right now, China does a really great job of getting as many golds as it can for morale-boosting using a relatively genetically homogenous population and picking only the poorest people in this population in a state-directed effort so as not to hinder the academic focus of its cities and its middle-upper class. China's gold medalists are specifically selected for showing athletic potential in early youth but poor academic potential as no parent is likely to give up a class ace to a sports trainer; it is a last resort for kids who don't have a reasonable path to an academic future. This means that China correctly prioritizes education and technology and uses what's left over for sports.
Do I think that China should nurture sports culture in its entire population to win more Olympic medals? No, not now. Now we need as much speed as possible in the tech race. Once America is beaten, however, China can go in this direction, primarily for promoting life balance and health, and secondarily to be competitive in international sports. By this time, China can maintain its tech lead with its very large and very intelligent population on cruise control and afford to divert these resources to sports and athleticism. It will probably even happen naturally without much government initiative when China is ahead and the pressure is off. However, I have to note that going into cruise control is dangerous; because you can't pull out. You'll be locked into it as people go willingly from high pressure to low pressure lifestyle but not the other way around. The US would probably happily throw away its gold medals if it could put its population into Manhattan Project mode on 5G and lithography/semiconductors. But it's not going to happen. Once the population is in BBQ and beer sports fist-bump mode, it's easier to push a mountain than to move them back into tech competition mode.
But now is not the time; now is the final dash for tech supremacy, so the final dash for the Olympic medals is on the backburner. China's approach now is the best; get as many medals as possible without disturbing the culture of insatiable, no cost too great obsession for academic/STEM excellence.