Google was the only search engine is China to display a "search results may be removed" disclaimer when users searched for restricted content. This obviously made China angry and operation Aurora was born.
China has the ability to block websites in much the same way a parent can filter out porn sites directly from their ISP. They can also DNS spoof based on keywords (where a user enters a search query only for the firewall to return a false DNS query) and so on. China actively uses a number of blocking tools, which are backed by IP blackholes.
I'd wager a VPN would work, and that anyone who knows anything about them would use one. I always use a VPN when working from my laptop.
So yes, we absolutely know Google can alter their algorithms, but at the very least they made the public aware some censorship was going on by posting the disclaimer.
Project Dragonfly though, well, that was just them trying to appease China and luckily that was dropped.