The answer to this can be found in the Epilogue. There, Diamond tells us that competition (and its absence) is largely responsible for this result.
According to Diamond, China did not become a major power because it had no real rivals in its region. European countries were all competing with one another for power. This forced them to adopt any technology or any new institutions that could make them powerful. If they did not, one of their competitors would outcompete them by adopting the things they refused to adopt. By contrast, China had no real rivals in East Asia. It could continue to be supreme in its region even without adopting the most effective technologies and institutions. Because it did not have to compete, China did not become as strong as the nations of Western Europe.