with such bamboo ceiling in place, google doesn't stand a chance to complete for the best of the best.
It seems unlikely that competition for employees will be stronger in China than in Silicon Valley.
I think you're right in that it really does depend on when China becomes a free society. Personally, from what/who I know from China, I don't see this happening within the next decade. I expect political instability within China to reach a tipping point, after which we'll either see a very slow global liberalization or a definitive move towards a more totalitarian Chinese government with a modern twist.
Honestly I don't know why Google has any faith in the good will of the future Chinese government. As has been established for a very long time, China needs foreign expertise more than any foreign company needs a labor or consumer market within China.
If so, they don't need to interact with the government that much like when they offered a search service to Chinese netizens.
I can think some companies that just do this. Hulu has an office in Beijing, although it doesn't offer video streaming service in China. And Grab has an office in Beijing too, although it only targets Southeast Asia market.
Then they can offer them higher compensation in a country that is not polluted.
If Google's top talent in China will mostly be poached within the next 10 years, is it really worthwhile to open a research center there? MSRA is a very good example, but at the end of the day, it's still a training ground for Chinese researchers. Paradoxically, the more important it is that Chinese researchers work on at Google China, the more likely that Google is to lose those researchers to government or private competitors.