You cannot be further away from truth if you think the Chinese higher education nowadays follows the communist bloc model. I did my undergraduate at one of the best universities in China, and to comment on your point:
> 1. Doctoral level studies are SUPER TOUGH
It's common knowledge that in China, graduate school admission follows government policy mandates. Government says we need more top-tier talent, and this is translated to having more PhDs, and then to admitting more people into doctoral programs. It's not uncommon to have one professor advising 20+ PhD students at the same time. The students often are just cheap labor at university labs, and sometimes even work as free childcare for the professors. I am not kidding.
The schools then set an explicit bar for graduation: publish N papers in SCI-indexed journals. Imagine if your company has a rule that says you need to close N tickets with M upvotes to claim your paycheck. Guess what will happen.
> 3. Lion share of people are totally fine with 2 year technical school programs.
Only those who score below the national cutoff score in the National College Entrance Exam go to technical programs. It's not by choice! There is a reason there are a lot of for-profit "private universities" in China these days: because you can pay to get into a private university and avoid technical school programs.
People want to avoid technical school programs so much that the most lucrative part of running a high school is actually prepping high school graduates who "failed" the NCEE for retaking the exam next year.
> 4. Plentiful supply of tech school talents feed the industry, and keep educated labour cheap.
The strength of manufacturing has nothing to do with tech school talent. It's simply because there a lot of people in China (4x the US population), and generally the Chinese workers have great work ethics thanks to whatever is leftover of traditional Chinese culture. The society is fairly ordered, and kids all follow the sanctioned path. No backpacking-in-Europe-for-a-year. No opioid crisis. Everybody is laser focused on career advancement and making money, and everybody has a sense of urgency.
> 5. This allows university level studies to be what they were supposed to be originally: academic research, and not doing degree milling.
Talk to anyone who graduated from a Chinese university. Seriously, anyone.
> 6. The industry and academia are don't go very far apart despite there being an iron wall in between academic and practical tertiary education.
This is quite true, because it's rare for academic folks to work on fundamental research. In the current incentive setup, doing hard fundamental research is just stupid. You need to get to that N publications quick!