I have lived in China for over 7 years, I speak fluent Chinese and own a business here.  I don't know shit?

... is it not possible that this whole rise and crash over the last few months is just massive pump and dump, aided by Chinese media outlets, and actually the government hasn't changed its stance on BTC at all. Are the same people who drove the price to 7000 yuan now driving it down? Was the removal of the third party payment processors simply part of this plan?

Entirely plausible since we are talking about a highly centralised command and control political entity here, who 'permitted' tons of Pro Bitcoin propaganda to go out via various state controlled media channels, before state institutions started to turn viciously against Bitcoin just a couple of weeks later.