There's a corollary to that question: why would China choose not to block Mullvad? We know every large nation with a capable online force maintains a fleet of ORBs, so maybe they consider Mullvad more useful for them as a functioning system?

Some of their own contractors may well depend on Mullvad. Perhaps as long as the overall "civilian" volume and user count remains acceptably low, the cost-benefit estimate may well be in favour of letting it slip by. (And for the civilians that do use a working variant, subject their connections to fine-grained traffic analysis.)