Ad-hoc networks cannot be controlled by authorities. The nodes themselves are the routers. The only way they could control such a thing would be to physically search each node, seize them and punish their operators somehow.
Ohhhh... I get it, he means "ad-hoc" in the Wi-Fi sense.
So all of the Bitcoin nodes in the whole country have to be within a couple hundred feet of one another.
I know China is population dense and all, but I am not convinced that would work... if it was that magic, all of Africa would be online with it by now.
It's not magic. The few nodes that are connected to the Internet have to pay the bandwidth costs of the entire network, which for most Internet services increases in proportion to the size of the ad-hoc network.
But, and this is the cool part, the Internet bandwidth used by a (full) Bitcoin node does not depend on the size of the ad-hoc network - you still download the same number of blocks and relay the same number of transactions regardless of how many ad-hoc peers you have. Each node could connect to hundreds or possibly even thousands of other nodes
on the ad-hoc network (which doesn't cost anything and the only limit is how much bandwidth the hardware can physically handle) while simultaneously attempting to connect to a handful of nodes on the Internet (if and when a Bitcoin-friendly Internet connection becomes available).
I'm not 100% certain it would work either (as you say, each node needs to be in close proximity to another node), but this is exactly the sort of application that ad-hoc networks are good at, so I think it has a real chance of success. Remember, the ad-hoc networking is
in addition to the Internet connection, not instead of it (and in fact it's completely useless without it), so even if the ad-hoc networking is a complete failure, it still functions as a regular relay node.