I don't think China banned Damus because it was something they couldn't control. They banned it because nostr is new and they want time to figure out what it is and if they need to control it before it proliferates. Same reason they banned Bitcoin mining and are now easing up a bit on it.

I heard someone talking about this on a podcast, so take that as you will, but it made sense to me. China will be fine with nostr because it is totally transparent. They can monitor everyone and the anonymity isn't that great. They want people to have an outlet to complain about the state that they can monitor and adjust their policies before things get out of hand. Nostr is not a subversive threat to them.