That's quite the might-makes-right apologia, but I don't believe you grasp what you're essentially condoning. In the same way that you haven't seen Tibet in movies in a good long while, you'll begin sliding down a pretty damn slippery slope if companies begin kowtowing to China whenever some Easter egg in a foreign game upsets them.
The US has applied economic sanctions against various entities (usually countries) for quite some time and few people in the West have been screaming. Screaming now because China is doing it is quite the double standard.
Well, there's a difference, here: we're talking between states that are not the best of friends, not states vs companies. Still, we have to discuss the method of which these sanctions occur: did the US prevent China and Russia, at any point, from trading, or are we talking about the US preventing a conflict of interest among, specifically, NATO nations? Seeing as just about every country throughout history has been doing the tariff war thing, I've just assumed it was a matter of that and military allies agreeing to focus on military interests and how the economy affects that at a national level, rather than laser focused on a particular business. I'll be honest, sure, I've could've done more research, but those offended could've went out of their way to inform me. What china's doing, the people of china are supposedly part of the enforcement, so they don't even have ignorance for an excuse.
I will admit, however, that there has been a targeted attack on TikTok, lately. However, TikTok actually got caught spying on clipboards and other data. Now, if you turned around and said "but facebook and google!" we would be in an agreement on something, then, right? I do believe these companies' data collection tactics pose a realistic threat from a militaristic point of view via tracking logistics, obtaining confidential information on officials, etc. I do believe it would be reasonable for governments to request audits on the data that is stored and evaluate whether that breaches reasonable national security interests. And, it's not like there is no precident for this: Google got caught violating COPPA, hence th COPPA controversy on youtube, where they started to try to pin it on youtubers instead of accepting responsibility for their own data collection.
If a governing body decides they don't want to do business with a given entity, because said entity offends them, it is their prerogative. Now, you could argue quite convincingly that the Chinese state is quite easily offended, but that is up to the Chinese people to sort out. If they go too far, they'll just isolate themselves from the rest of the world (they are the biggest economy, but they are still a fraction of the world's economy).
There's 2 problems to this:
1) We're not talking about China saying it doesn't want to do business with the devs of devotion. We have China saying it doesn't want anyone else doing business with Devotions devs, either.
2) I think we're at the point where we put your theory to the test. China seems to have all the major businesses by the nose-ring, and we're not seeing any changes. Hell, not even getting kicked out of china seems to be enough: the companies will just do whatever they can to convince china to grab them by the nosering again (hello, Google).
Otherwise, concerning the specific point at hand (not Tibet or Taiwan, but the game Devotion), while being an *rsehole should not be illegal (and as far as I know, the creators of Devotion are not sitting in jail right now), that doesn't mean that there should be no ramification (lost economic opportunities, loss of reputation, etc).
Yes, but this is a bit of overstepping going on, here. If i offend the LGBTQIA+ community, it seems reasonable that they might boycott me, as well as friends and family of people in that community. However, an anti-LGBTQIA+ activist should be able to feel right at home, no matter how much of assholes everyone in the trasaction are. How else can we hold power structures accountable for going too far than voting with our wallets and ideas? Say the LGBTQIA+ community adds "P" (pedophile) to the acronym. With the natural pandering companies do (for better or worse, depending on your perspective), if we (including people from the LGBTQIA+ community who might be offended by the decision, which I imagine would be most of the community) can't vote with our wallets, how can capitalism even reflect the average consumer? Just look at the friction that lead to the LGB Alliance splintering from the LGBTQIA+ community. But, this example might be too close to home for some users, so why don't we abstract it to, say, China? Or how about Islam? What about Trump and supporters? What about a vile Christian game? Does it really matter?
You see, in the west, we used to have this separation from "words and ideas" and "physically applied actions." To this degree, "loli hentai" would be legal, but pornography of children would be illegal. It is by this same principle that movies with violence in it is legal, because no one's actually getting killed for the purpose of the movie, but snuff films are very illegal (there seems to be an exception for "incidental recordings" due to their passive nature, which is actually consistent when you think about it). Somewhere along the line, we completely lost this notion, and now speech itself can be a form of violence, especially as we stripped humanity of it's ability to have agency over it's own decisions. Howe can we ever expect humanity to improve if we continue to coddle it to the degree that is has no freedom to act and learn from it's mistakes?
Of course, its unfair that the social/economic consequence of being uncivil are applied proportionately to the leverage of the offended party (taking a cheap shot at the head of China seems to carry a lot more consequences than taking a cheap shot at the mayor of a small village), but it is still inadvisable to needlessly offend people (sometimes, giving offense is just a side-consequence of some other purpose, but other times, it is just needlessly gratuitous and in this case, it was needlessly gratuitous).
And who gets to be the arbiter of what is gratuitous and what is not? I don't think we have the level of omniscience to separate bad intentions from bad delivery, no matter how obvious it may seem at the time. But, consider what was going on here: are we sure it asn't a placeholder? Normally, i'd say no (because it looks to be baked into the wall's texture), but it seems they didn't take long to remove it, suggesting to me that my reason for such an assumption was wrong (it really wasn't baked into the wall). Who knows what all other other junk was used as place holders? Things like this get found all the time. Heck, Halo 1 has a hidden message that was never meant to be found where some dude announced his love for his wife/girlfriend. This kind of thing happens all the time, and lots of times things don't get found, but sometimes accidentally they get found. Just yesterday I decrypted a message in Cyberdimension Neptunia: 4 Goddesses Online that the translators never translated, which suggests to me that it wasn't meant to be decrypted (and, honestly, i'd be surprised if anyone else has managed to decrypt it, even in Japan).