Quite the opposite: it creates huge demand for local copies of foreign services that are unreachable from within it. It's the protectionist's dream.
Foreign websites are, as a rule, very badly reachable from within the country. I don't even want to use them personally, let alone build a business on them.
As an example, the rest of the world hasn't mass-adopted Baidu and isn't going to. The same has and will go for most of China's services.
Baidu is heavily shielded from external competition due to both nationalism and government controls (censorship etc). A protectionist's dream? No, a trapped nightmare, they can never compete properly with Google on a global scale. Seeing as China represents about 10-12% of global GDP, Baidu will never derive a meaningful business from perhaps 3/4 of the global economy accordingly.
Yeah but they may never have had a business to begin with without the protectionism. Case in point; where is all the other search engines from other countries that have no protectionist schemes?
I can access Baidu from the US... but they clearly aren't trying to get my traffic -- the site is in mandarin.
So I don't understand why you think they're trapped... if they wanted to, they're free to expand outside of China.. there are few countries that have similar censorship.
Frankly speaking, it's just "肥水不流外人田" in Chinese, which probably means keeping profitable things in one's own farmland in English. We always presume the higher orders have almost the same goals with the country. However, it is not the case every time. Also, state-run investment in such a large scale will simply lead to just another massive misallocation of the investment. For many officers, it's another opportunity to wash those money and put into personal accounts.
I'm not sure if we can all it a healthy ecosystem, but I guess most IT people here in China will agree with me that, while the Great Fire Wall's original purpose should be purely political censorship, it actually helped the growth of the Google-clone, the youtube-clone, the twitter-clone, and most other clones in this country, because the massive majority of the my fellow countrymen cannot access those original websites.
