I think it was both of the factors you mentioned but also due to the fact that in early/mid 2000s, China increased the number of university student by an order of magnitude (almost ten fold). This caused some growing pains in universities in the late 2000s beginning 2010s which means that in the race to hire enough teacher to fill demand, not every teacher was competent (I've met some remarkably incompetent CS teachers when visiting universities) and there weren't necessarily enough funds to handle the influx of students.

It was common knowledge that people who had graduated before 2004-2005 tended to be much better candidate and had received a better education. In the end, it was necessary for the country but any big systemic changes like this cause growing pains. I do not know what the current landscape in China is nowadays, I would assume that this is much less of a problem since time probably helped with those growing pains, on the other hand, as the PRC starts creating tighter and tighter restrictions, the best elements might be more likely to want to study abroad.