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It's much easier to force intermediary communications and Internet companies such as Google to police themselves and their users than the alternatives: sending cops after everybody who attempts a risque or politically sensitive search, getting parents and teachers to do their jobs, or chasing down the origin of every offending link.
I don't think any foreign Internet company can effectively compete against Chinese companies in the Chinese market. The regulatory environment is so difficult that it's almost impossible for foreigners to have an advantage over locals who have better political connections and who can manipulate the regulatory system much more effectively.
A number of countries, including Russia and China, have put forward proposals to regulate aspects of the Internet like 'crime' and 'security' that are currently unregulated at the global level due to lack of international consensus over what those terms actually mean or over how to balance enforcement with the protection of citizens' rights.