Can't really compare Chinese markets to the west right now until coin withdrawal is enabled again. You provided a link to the litecoin markets as your proof; but, looking at bitcoin markets you can see the same lower prices for bitcoin as well.
http://coinmarketcap.com/currencies/bitcoin/#marketsUntil the exchanges in China receive regulatory approval (and no one knows when this might be) the discrepancy between exchanges will continue to exist.
https://www.bloomberg.com/news/articles/2017-03-08/china-s-top-bitcoin-exchanges-extend-suspension-of-withdrawalsLikely, LTC and BTC prices would both be higher if it wasn't for the concerns of the Chinese government.
You also state:
The Direct Coinbase LTC/US$ wallet is all the US / Europe merchants care about, after it is setup BTC will have zero advantage over LTC in the merchants eyes. Cheaper fees and faster transactions with no capacity problems.
I don't disagree that the addition to coinbase is going to be benificial with the expanding growth of LTC merchant use. Other payment methods supporting litecoin such as Gocoin, Coinpayments, Alphacoins and Coinify provide some merchant support; but, definitely the exposure with Coinbase helps.
Merchants that utilize payment methods with companies like coinbase generally have no knowledge of faster transaction times or capacity of a cryptocurrancy. Why would they? These merchants receive their payments in their local currency, the payment processor receives the coins not the merchant.
If the payment processor provides a better conversion rate with LTC, because of the lower fees the customer may notice and choose LTC over BTC.