China isn't going to be able to put this genie back in the bottle. I'm reminded of the scene from Jurassic Park where the scientists act as if they've accounted for every conceivable variable and are so absolutely certain that they've taken every measure necessary to prevent Dinosaurs from escaping and breeding. Jeff Goldblum's character Ian Malcolm responds with a great little speech about how life always finds a way. Despite whatever barriers the state puts in place, people will find ways to freely trade using Bitcoins if they want to. Chinese people will hopefully find ways to work around the criminals that claim to rule them.

This isn't surprising. It'll take a few more years for the mainstream to catch up. It's still oftentimes hard even for technical people to understand the exact application of cryptography in Bitcoin and understand why the system is very secure. It takes a lot of work even for programmers to fully comprehend BTC. A non-technical person who is exposed to Bitcoin for the first time would be more likely than not to think it's a scam.

We just have to prove it to them by developing an actual economy that people use.

Whitelists are better than blacklists. Google everybody you're about to purchase from and try and make sure (to the best of your ability) that they're reputable. If they have some reviews online, if nobody is calling them a scammer, you're not perfectly safe, but you'll have better odds by choosing somebody with a good history.