I don't think any foreign Internet company can effectively compete against Chinese companies in the Chinese market. The regulatory environment is so difficult that it's almost impossible for foreigners to have an advantage over locals who have better political connections and who can manipulate the regulatory system much more effectively.
Facebook is not a physical country, but with 900 million users, its 'population' comes third after China and India. It may not be able to tax or jail its inhabitants, but its executives, programmers, and engineers do exercise a form of governance over people's online activities and identities.
A number of countries, including Russia and China, have put forward proposals to regulate aspects of the Internet like 'crime' and 'security' that are currently unregulated at the global level due to lack of international consensus over what those terms actually mean or over how to balance enforcement with the protection of citizens' rights.
Right after September 11, 2001, there weren't really any blogs in China, but there were a lot of Chinese chatrooms - and there were a lot of conversations in which Chinese netizens were saying things like, 'served them right.' That was definitely not the official Chinese government policy - which condemned the terrorists.
I lived in China for 9 years straight. I saw how my Chinese friends benefited and gained much more freedom to determine the course of their lives, their jobs, their creative works, and their identities over the course of a decade. Much of this increased freedom is thanks to economic engagement by the West.
It's much easier to force intermediary communications and Internet companies such as Google to police themselves and their users than the alternatives: sending cops after everybody who attempts a risque or politically sensitive search, getting parents and teachers to do their jobs, or chasing down the origin of every offending link.