Watching the issues between Google and China is kind of like watching the issues between Google and Apple. The differences aren't about technology limitations or competition for business, the differences are about who has control -- is it the individual or the organization?
Apple and China both believe the organization should control what the individual does and how they do it. It seems to work to make a happier general population; Apple users are almost fanatical about the product and the Chinese populace has a sense of national pride usually reserved for old men with nostalgia.
Except both Apple and China have their detractors with the educated crowd -- in Apple's case it's the technical savvy and in China's it's the world savvy who have gone to university and traveled and seen there are other ways to do things.
The frustration is the same -- when the organization controls the population, life becomes more homogeneous, you have fewer choices, more limitations on what you can do, and innovation stagnates.
Google provided a standard for Chinese companies to work towards, but from what I've seen and read, without an outside impetus, Chinese companies tend to copy each other rather than invest in R&D.
Apple has been steadily copying other technologies, and while they made a great MP3 player and prettier smartphone, they really offer nothing fundamentally new, to the point that even the uneducated, fanatical masses recognize the iPad as just another iPod/iPhone/iTouch clone.
The world faces some really serious challenges with too many people and too few resources. This is when we need innovation, but the problem is that the benevolent dictator model makes people happy. It's in part because all this shit is so complicated that we need someone to tell us, "This is how it works," even if there are other, better ways to make it work.
Of course it was this ideal that led to the "I was just following orders" defense...