The reason Microsoft still makes money is beyond me. Linux has the same capabilities as Windows. China has only recently seen the market value of such a system. The greatest thing about Linux is advances in development are parallel with need. Linux is completely open source, so as a user needs something new from the OS, they can actually design and implement it themself. No need to send suggestions and wait for the next installment of the product. As China has needs from Linux, they have the freedom to develop it without waiting for tech support.
I do not believe China's adoption of Linux will cause a new Virtuous Cycle. For the most part Linux has been left for the few who want to learn and use it and I do not think it will change the economy for China simply based on its usage. I think it may help Linux to become more popular in the future.
No, I do not at all think that China's adoption of Linux will cause a new Virtuous Cycle. China really isn't going back to any Communist ideology, no matter what its government might say. It's a commercial entity with some governmental powers now. Linux is simply a cost effective way to deploy technology.
I think that China's adoption of Linux will not cause a new Virtuous Cycle to occur. In fact, I think that nothing really substantial will occur from this adoption, and it isn't as big of a deal as people are trying to make it out to be. It isn't a huge issue, and it shouldn't be regarded as one either.
Linux is a solid option for people in China and the open source nature of the operating system will be great for the programmers and the people of China themselves. Still, the idea that the transition will lead to a mass or large scale difference is far over drawn and misinformed.