Remember that you don't hear these news about Baidu, Bing or other chinese search engines and technology companies. It's only Google that seems to be having huge problems in China. Not only with the Chinese government but also Chinese competitors and the way of life. Again, the Chinese versions of Twitter, Facebook, Google etc. are doing just fine.
Fact is, Google has never really had that good market share in China. Baidu has always been a clear winner. This has led to Google annoyingly complaining about the state of things. They are, for once, the monolith that doesn't want to change. This same holds true for Russia and CIS countries where Google is losing to Yandex.
Just like the record companies in the western world and US need to change their business, so does Google in China. More importantly they need to stop bitching and complaining when things aren't going like they would want them to go. For example, Baidu offers mp3 search engines where people can download music for free, legally. Google called quits on such service (they used to run it for a while but never gained popularity).
The fact is, Google is not struggling because the Great Firewall or because the government makes competition hard. Google is struggling on their own regards and only by themselves. They seem not to be able to justify their existence in China and doesn't seem to offer Chinese citizens what they want.
Google is also struggling because they don't have the data points Baidu has because of it's size. They have that in the west and that's also why Google seems to be better than Bing. In today's search engine market not only is your algorithm necessary, but also great amount of data that you can collect. That data is what ultimately makes your algorithm work. Google does not have that in China and Russia and that's why they're struggling in those markets. Not because of the government.