The company I work in now has no problem competing with Chinese companies working 996, despite us working 7.5h days and having way more vacation days. I believe part of that is that working longer hours doesn't necessarily make you more productive, as has been discussed in tech communities for a while now.
The thing is, to be productive with shorter working hours requires a very different culture. The company I work in now has a very flat structure, and people are encouraged to work on side projects that can improve productivity, and there's a focus on continuously improving methodology. The last company I worked for was Chinese-American (based in US, but 99% Chinese working there), and it was the exact opposite. Decisions on what to work on was made top-down and results were mainly achieved through brute force. Although since we worked in a somewhat independent office in Europe we ended up with a hybrid system.
So the question is, will a shift away from 996 lead to a shift in work culture that increases productivity, or will they just work fewer hours with the same culture?
That seems to be the problem for the CCP in general. They want to make improvements, but they don't really get to the root of the problem. They crack down on after-school tutoring for instance, but they don't change the Gaokao system, so tutoring will just go underground.