If a government decides to make trading or possessing Bitcoins illegal, questions will be raised about how exactly it will enforce such a ban. It is impossible for a government to seize your Bitcoins, unless you decide to handover your private keys. However, the majority of citizens and institutions like to stay on the right side of the law. So the demand for Bitcoin would plummet if the government decided to ban it. All exchanges in that country would also be shuttered and buying/selling Bitcoin would be difficult and risky. This would suffocate Bitcoin in that country and the governments objectives might be achieved.
This would be true if Bitcoin were localized within such a country. But since it isn't, and since most of the world continues to accept and even embrace it, demand won't necessarily be stifled. If global demand continues to rise and thus, price continues to rise, Chinese residents would still have demand for BTC as a store of value.
It doesn't matter what their government says. The government blocks all sorts of websites, and people just circumvent the ban with VPNs. In this case, we're talking about people securing their wealth against a falling native currency. You can't kill that kind of demand with laws.
