The most likely explanation is that some mainlander inside Google has been pushing for this with the "this is racist and hurting the feelings of the Chinese people" argument.
https://en.wikipedia.org/wiki/Google_China#2016%E2%80%93pres...
Not really. Google hasn't returned to the mainland market. Youtube is blocked.
That little bit of developer interaction or Project Dragonfly - whatever its state may be - does not contradict that.
If you believe this sort of censorship is ordered from the top in order to get back into the mainland market, that's fine. I still prefer my explanation.