I've discussed the crypto wars before. Basically, if you restrict or limit strong encryption so that the government and law enforcement can have surveillance and wiretapping capabilities, you weaken all forms of encryption, and thus weaken security itself. This has implications for everything from espionage to online commerce.
China understands this. And China's decision, in the crypto wars, is to come down on the side of surveillance--and thus weaken all of its information infrastructure.
There's a long, and fairly analytical, article in the Economist on the topic.
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