China can SPV mine, which they do already, but it is risky and puts them at a further disadvantage.
Why? They can control the pool abroad.
A pool abroad is a loser. It just adds latency.
That doesn't add any latency that they wouldn't have already with small blocks.
Yes it does. Block is solved in China. If it is sent to a mining pool in China, that mining pool and the other ones in China receive it right away. If it has to go over GFW twice, as would be the case with a pool node outside China, then there is added latency.
Incorrect. The pool still has to propagate the block solution to the block chain which means all block solutions have to propagate across the GFW (so it always double for incoming/outgoing block solutions regardless whether the pool is inside or outside China's wall). The size of the blocks is irrelevant as I said.
The block solution can be propagated directly to others inside of China even if the pool is also outside.
They would have to build a custom solution to do that, and then deal with maintaining it and potentially being exploited in some manner. If forced, they will likely do exactly that, but they would prefer not to.
I'm not referring to what is theoretically possible (maybe, if there aren't some non-obvious ways to exploit it) but what is readily deployable using existing tools.
BTW, aren't many of the "Chinese miners" actually in Mongolia? Is that inside or outside the GFW? I think outside, but I'm not sure.