Two billion people living in an autocracy ... if Google still believed in Don’t Be Evil, this would not be acceptable.
It just goes to show the power of branding and how much people attach to it.
edit/minor correction: I guess they'd have control over peering agreements for initial hops for Google Fiber users, but that wouldn't have resolved the issue in this case, either, unless they stopped peering with other huge providers like NTT. Even then, it'd only help their subscribers.
Lots of people live in China.
China doesn't need anyone to play along to prevent their population from accessing the global internet. Right now, at least the rest of the world can access Chinese websites. A blanket ban on peering with Chinese ISPs would really bifurcate the internet. I'd count that as "playing along".
To answer your question, most large companies have been subject to cyber espionage by the chinese military for several years. This accounts for the speed at which China built its manufacturing base in strategically important industries and its ability to rapidly copy products and the required tooling for their manufacture.
The Mandiant report I linked to above focused on tracking the activities of a single but prolific APT group responsible for hacks in 150 major companies worldwide for 7 years since 2006, and that they believe is actually a team of cyber espionage professionals from within the Chinese military.
Also just for fun: Anyone here drive a Range Rover Evoke? Heres China's version:
So the result is that you have to somewhat trust who you are peering with, and who they are peering with, etc. to the other end of the traffic.
A bad actor can make lots of chaos.