You're expecting a relatively new Communist government, formed only about half a century ago and currently governs 1.3 billion people, to change its core philosophies overnight. It's not so easy. I don't support this stuff, but I recognize that it's not easy. I bet you it's harder than changing a country's dependence on oil as an energy source (assuming that viable alternatives are available). You have to change the world's largest population's philosophies, governing structure and infrastructure, expectations, etc.
India and Japan generally don't censor foreign websites, and their governments survive OK.
It's a big loss of face for the present leaders to change their policy. But we keep on hearing the phrase from within China: "Perhaps the new generation of leaders taking over in October 2012 will have different ideas about web censorship". If the policy is going to change, it'll be soon after this time when no government leaders "lose face".
The US and EU are also preparing to challenge China at the WTO claiming the Great Firewall violates free trade. If the US and EU can get their timing and level of prodding right, the Firewall might be dismantled. China's already given their web businesses such as Baidu enough startup advantage from the Firewall, and will probably find other ways to give advantage to subsequent startups.
But... the infrastructure's already there in China to block foreign websites. Anything that exists but isn't used will be used again sooner or later by some politician, so thanks to Cisco et al the Firewall will always exist even if "dismantled" under WTO enforcement. Just like the US military is there to defend the integrity and borders of the Union, to be used as a last resort, but gets used to invade Iraq for cheap oil.
I think you misunderstood what I'm trying to say. I don't think it's about losing face. Nor about whether the government survives. It's about cultural momentum. Look at how hard it is to change policies in any government. Look at how long it took the US to get socialized health care, despite people clamoring for it for decades, and even then, that could be repealed by future administrations, as some GOP folks are demanding.
For the same reasons a startup is nimbler than a big corporation for changing things, larger countries are slower than smaller countries for making significant change. India is lucky because it's had a tradition of democracy and freedom for quite some time. They already had cultural momentum in that direction, so they don't need to change anything to align with what you want. Similar for Japan. China, you're asking them to reverse the pull of gravity.
I've worked in teams that were focused on creating big vision cultural and organizational change in big corporations. I can't even begin to imagine how difficult it would be in a big government, especially one of China's size, and one where there is no easy allowance for diversity of opinions.
For example, China's central government is huge on trying to stamp out corruption. However, despite the number of executions they continually carry out for corruption matters and the dissatisfaction of the populace, it is logistically impossible to keep a handle on all of the regional and local governments. It's a huge complicated machine, and I'd warrant that it's even more complicated than the US government's operations, judging from what I've seen living in China.
