Supply is more important for attacker (better to have 100%), than defender. In China you probably have shortage.
Rough description of land combat is:
1) Active devices fire onto other side. Enemy devices get destroyed/disabled/or suppressed.
2) AV is calculated, and all modifiers added
3) Final ratio calculation, and effect implemented (loses for both sides, and retreat)
Enemy have 100 less AV, than from your previous report, however you are 500 points shorter. Probably lots of your squads were disabled, so this time you had even less firepower, and was unable to suppress enough enemy devices. That is how he get so much AV.
Good indication of enemy weakness is ratio of his destroyed devices to disabled. Once disablements reach 50%, you have greater chance to target already disabled squads, so you destroy them this time.
From this report:
Allied ground losses:
6743 casualties reported
Squads: 127 destroyed, 720 disabled
Non Combat: 8 destroyed, 84 disabled
Engineers: 3 destroyed, 56 disabled
Guns lost 62 (3 destroyed, 59 disabled)
great difference, so enemy is in pretty good condition.
Overall, you will not recover your units without supply, and in enemy terrain. You have to move your battered units to supplied bases, and recover there. Hard to do in China.