More important than the fact that the majority of mining takes place in China is the fact that the majority of ASIC devices are manufactured by one company: BITMAIN, which is a Chinese company.
The restrictions on BTC in China are not necessarily because China doesn't see any benefit in BTC business, buy because the government wants to suppress any attempt to access the free Internet. If a monopoly like BITMAIN is operating in China they will be more interested in controlling as much of the company's activities as possible rather than restricting BTC as a whole.
Dont the chinese state see any taxable benefits in the btc business?
China can pass any law without the chinese people approval. They cant ban bitcoin but they can bitcoin mining in China if they want and if they do that how secure will the btc network be with half of its hashrate wiped off overnight? Can the btc network auto adjust quickly to any quick change in mining circumstances before any attacks to it?
Whats bitcoin got to do with free internet? Bitcoin is a currency not a website where the chinese state can restrict access to sites like facebook, youtube etc.