To me, this not a setback, but an advantage for AMD and other potential competitors in this space. The reason is because when you cap how powerful your hardware can be in order to be eligible for sale in a very big market, you are pretty much leveling out the playing field. Nvidia for example likely have the most desirable hardware due to performance advantage. When you cap the potential, and for the price that Nvidia charges, it will become a lot less desirable to buyers in China. Why pay more when they perform round about the same?
Ultimately, the long term effect is detrimental to all these technology companies. The cap performance is likely quite a fair bit lower. And once domestic solutions catches up with this performance, there will be no demand for them.