Then there will be a big LAN in Asia without physical connections to the outside Internet, Resulting in another small Internet emerging.
And we know there are large harshpowers in China.
Then what will happen to Bitcoin?
Will there be two Bitcoin systems co-existing?
I'm sure that there will be plenty of ways to get around this. It would be pretty easy for people to still operate a bitcoin wallet with SMS commands still, even if all else fails. This is proven to work even in remote areas. Bitcoin is extremely versatile.
Why would the government even do this, just to ban bitcoin?
It is completely unfeasible for them, and it'll probably spark public outrage.
If they want taxes they should be able to regulate those matters. So they just want a transparency of transaction, or maybe also want to dominate the local market.