Isn't this an entirely rational way for China to react to market exclusion? Given the size of the upside economically this would be a cheap investment.

Most likely, somebody tries to forbid it.

Yes and it has done so successfully for years.

An interesting high profile example: https://meet-global.bnext.com.tw/articles/view/47800?

I believe one point in time the US forbid its citizens to work on certain companies / technology outside US or risk losing their citizenship.

It's nothing new. Chinese companies (mainland and Taiwan) have always courted "returnees" and "foreign experts" to develop their own capabilities.

Famous case in point is the very founder of TSMC, Morris Chang, who was convinced to move to Taiwan from the US to lead a research institute, which ultimately led to him starting TSMC.

Of course, as criticality increases so does the number of zeroes on the offer.