Maybe but they'll lose the productivity gains from networked organizations and communities. China can grow a long way without those gains, but they'll eventually hit a wall.
Absolutely but the effect will be not be huge in my opinion because of the language differences. All my Chinese friends here in the EU still use mainly Chinese language website, most of which are based in China, especially the social networking ones.
They could try to mitigate by rationing secure channels, or allowing them with backdoors, but this still sacrifices the spontaneous creativity of a truly open system.