China is continuing to erode the United States's military superiority in Asia, but Beijing's overall power in the region has plateaued, new analysis finds.

The latest version of the Lowy Institute's Asia Power Index, which measures the relative strength of 27 states and territories, has found that the US remains the most powerful country in the region, just in front of Beijing.

The US leads China on six out of eight index measures, with Washington maintaining stronger defence networks, cultural influence and economic capability than Beijing, while China enjoys stronger diplomatic ties and trade relationships across Asia.

"The United States and China appear to be digging in for a long contest," the report says.

"China's power is neither surging nor collapsing, but plateauing. Flatlining economic capability, driven by slower economic growth and longer-term structural challenges, means that China's economic clout, while still commanding, is no longer growing."

Those long-term structural challenges include China's shrinking population.

The United States' successful efforts to bolster defence ties with allies like Japan, Australia and the Philippines has also buttressed its power in Asia.

The report says the US "continues to confound pessimists by demonstrating its staying power in the region, buoyed by its economic capabilities and alliance networks".

However, Beijing continues to close the gap on Washington when it comes to military capability, as it ploughs vast sums of money into expanding its armed forces.

The report says China is now in a better position than the US to rapidly deploy its military in Asia for a sustained period in the case of conflict — the first time Beijing has inched ahead on that measure.

The index's main author, Susannah Paton, told the ABC that despite the "enduring deficiencies" of the People's Liberation Army, China's investments in military power and its natural geographical advantages were eroding America's position.

She said that the strong growth of the US economy and its comparably strong demographic outlook also bolstered America's broader strategic position in Asia, although China still retained a "huge" lead over the USA when it came to trade ties.

"The US economy has performed relatively better than China's and when you look at future resources and demographic trends, that looks more positive for the US than China," she said.

"But China is still the region's main trading partner, and the US hasn't dented that, which points to continued deficiencies with US economic engagement in the region, and the lack of a dividend from US efforts to encourage private sector in the region."

Meanwhile, India has narrowly eclipsed Japan to become Asia's third most powerful country, according to the index — although both remain way behind the US and China.

Susannah Paton said India's strong economic growth and energetic diplomacy in the region had bolstered its position, although there were still question marks over its trajectory.

"The glass-half-full view of India is that it's growing strongly and its diplomatic influence has increased," she said.

"But the more downbeat assessment is that they're still lagging in their economic relationships with the region. That's no surprise given India's reluctance to join regional trade arrangements and that it remains fairly inwards looking economically."

While Japan retains significant strengths, its economic position in the region has fallen away, with the index noting that its technological advantage has "eroded sharply in the face of competition from other advanced manufacturing hubs in South Korea, China, and Taiwan".

"This has redirected foreign investment away from the Japanese technology sector and, when coupled with demographic headwinds, has contributed to Japan's declining productivity," it says.

However, Japan has simultaneously bolstered its position by quickly growing its defence relationships, particularly with the US and Australia, with the Index saying that Tokyo was "stepping up as a regional security actor in its own right".

Australia is the fifth most powerful player in Asia according to the Index, eclipsing Russia which has suffered a sharp decline in influence as its war in Ukraine saps its focus and energy in Asia.

The Index says Australia's staying power "contradicts a more pessimistic view that over time, it will become a smaller and less relevant player as other much larger economies rise".

Meanwhile, Indonesia has enjoyed a sharp increase in its regional power, driven by its success in forging stronger economic relationships and defence ties with countries across the region.