You can consider that the hasing power from China is bigger than everything else because it's the most overpopulated nation from everyone else.
Therefore you will have more people doing "stuff" for cryptocurrencies than on other place.
Not only that but their economic growth and technology involvement is way bigger than any other Country.
Based on those points you get your answer on why hash rates are bigger there.
Also making some laws against bitcoin or any other crypto doesn't relate the fact they can or not do hashing.
I don't think it's just population. It's also cheap electricity at least. There are other countries which are quite populated but far behind on Bitcoin adoption. Adoption is not evenly distributed between countries based on their population. In Ukraine the adoption rate is particularly small, and in India it's quite low compared to its population.
As for the op's question, I think that China does what it has to do to maintain control. Thus it can be rival to Bitcoin, but careful not to impose such bans that would destabilise the region. Moreover, it seems to be taking "Blockchain but not Bitcoin" approach, so to speak, judging by relatively recent statements from the officials.
When it terms of Bitcoin, China really always want to become superior on any aspects. They are against bitcoin and cryptocurrency because they want to create their own cryptocurrency. China is very money-mindness because of their culture which is they focused on in their country. So that's correct that they're taking the blockchain approach because they know that it will really help their economy grow. China government also want to control their people's money, so they want to decentralized the cryptocurrency on their own, to manipulat the poeple's money.