The net effect of China on Bitcoin can only be positive.  True, a lot of Chinese will avoid Bitcoin because of the government's hostility towards it.  But even if just 1% of Chinese were to start using Bitcoin, that would be a huge boost for Bitcoin's user base.

In China there is a lot of pent-up demand for a good store-of-value, but very limited supply.  In the long term, something has to give.

China is a bit like a huge bucket submerged in water. The bucket is mostly watertight, but it does have numerous microscopic cracks where water is constantly leaking in.  The government is constantly trying to mend the cracks but new ones keep appearing.  Slowly but surely the bucket is filling. It might take decades but eventually the bucket will have the same water level as the outside world.