I just found this post on Google's official blog that provides some answers:
Google users in China today struggle with a service that, to be blunt, isn't very good. Google.com appears to be down around 10% of the time. Even when users can reach it, the website is slow, and sometimes produces results that when clicked on, stall out the user's browser. Our Google News service is never available; Google Images is accessible only half the time. At Google we work hard to create a great experience for our users, and the level of service we've been able to provide in China is not something we're proud of.Fair enough, but I don't think that people using Google via a proxy would have such problems anyway.
Launching a Google domain that restricts information in any way isn't a step we took lightly. For several years, we've debated whether entering the Chinese market at this point in history could be consistent with our mission and values. Our executives have spent a lot of time in recent months talking with many people, ranging from those who applaud the Chinese government for its embrace of a market economy and its lifting of 400 million people out of poverty to those who disagree with many of the Chinese government's policies, but who wish the best for China and its people.I love the self-serving first stance mentioned there--applauding the Chinese government "for its embrace of a market economy and its lifting of 400 million people out of poverty." That's a bit like applauding someone for beating his wife less severely than he used to (and taking him at his word as to the numbers).
No, we're not going to offer some Google products, such as Gmail or Blogger, on Google.cn until we're comfortable that we can do so in a manner that respects our users' interests in the privacy of their personal communications.So they won't be exposing dissidents like some have recently.
And yes, Chinese regulations will require us to remove some sensitive information from our search results. When we do so, we'll disclose this to users, just as we already do in those rare instances where we alter results in order to comply with local laws in France, Germany and the U.S.Google does deserve a bit of credit for this. Users see a little notice in Chinese that says the results have been filtered. Maybe Chinese users will start to wonder why. What would be great is if it said how many results have been filtered out--"Your government's Ministry of Truth is keeping 1,203,089 sites full of information about Taiwan from you. Now go enjoy 'Chinataiwan.org.'"
We're in this for the long haul. In the years to come, we'll be making significant and growing investments in China. Our launch of google.cn, though filtered, is a necessary first step toward achieving a productive presence in a rapidly changing country that will be one of the world's most important and dynamic for decades to come.They say it's a necessary first step. Let's hope they don't mean it's their first compromise of many to come.