Oh, they know. The industry has been lobbying quite badly for exactly this to happen. Why spend a fortune on innovation when a few bucks of lobbying can get the government to ban your competition because "China bad"?

As the comment you responded to said: it's all about the next quarterly profits. The fact that we are getting leapfrogged by China doesn't matter to those CEOs: that's a long-term thing, and it doesn't impact their next bonus.