Chinese people are much more unable to filter out misinformation because the government tightly controls information flows and manipulates it toward its interest - at least in the US people can hear different voices and make their own mind about it. It's quite ironic to post such idea on HN, which is an American forum that would be censored if it was in China.
Competing religions are indeed a great concern of the largest cult in China, whose church is the CCP. The CCP hates "mainstream Islam" (what is it?) and Uighurs have been jailed for things like reading the Quran. But repression is not at all solely religion-oriented.
And what you are saying regarding the regime becoming more liberal with time is also wrong - the dystopian surveillance of society and the absurd crackdown during Covid is a good example that the CCP is always ready to go back to its mad totalitarian roots when time is right.
Just like it ordered to kill all sparrows in the past, the CCP ordered to seal buildings and their inhabitants during covid. Nothing really changed.