The internet being bad is done on purpose. They don't have to make it shit with the traffic analysis, since internal traffic has traffic analysis too. They do it to keep china's internet an internal, more easily controllable intranet.
I think it has more to do with lack of competition in the ISP market. In most places, there's only one fixed line broadband provider, so there's incentive to increase speeds (as people will pay to get better quality streaming video on multiple devices) but none to improve peering with overseas networks.
I've been fortunate enough to have access to non-GFWed bandwidth to play with on several occasions, and my experience would seem to suggest this is accurate. I can easily sustain 60mbps to the US when not subject to the GFW, but when using normal non-exempt bandwidth from the same (domestic) provider, could only sustain 5-10mbps. China's network architecture in Tier-1 cities is largely fine, and it's really the GFW that throws a wrench in things internationally.
Data localisation regulations are certainly one reason for foreign companies to set up local infra, but IMHO the real reason is that it's the only way to provide an even remotely tolerable user experience to users in mainland China. Aliyun is basically AWS for China and is very easy to get up and running, and getting an ICP license wasn't nearly as hard as everyone makes it out to be (got one in ~2 weeks from application).
NOT GFW, just concerning Apple's money.
Chinese have downloaded so much HD video crossing the border through the GFW,but the speed is not so slow as Xcode downloading.