That is not what happened at all, and this is only a story that Indian fanboys created, and since western media is blatantly biased against China, they were happy to perpetrate it, and now it has supplanted facts to become the established reality.
The difference between the MKK and MKI pretty much epitomizes the contrasting styles and priorities of India and China when it comes to defense products.
The Chinese when with their steady and realistic progress approach, and opted to have what was readily available delivered to them ASAP, and wanted to pursue a stepped upgrade programme, whereby they paid the Russians to make modestly improved versions of the weapons they already have, which could then be retro-fitted to the existing fleet fairly rapidly and at reasonable cost.
The MK2 was the next step up from the MKK, and there was originally an MK3 planned. The Russians also had a Su27SKS (?I forget with all the letters they have used over the years and it is not important enough to check) upgrade for the Su27SKs. But ultimately, the MK2 and Su27 upgrades proved disappointing, and the Chinese canceled the MK3 and did not make any more MK2 purchases beyond the first batch.
The Indians went with their 'lets go flying before we can crawl' approach, and wanted the wonderplane and didn't care how much it cost or how long it took.
The MKI is a far better all round bird than the MKK, but it is also far more expensive, and look at the time tables for delivery between the two types, as well as the total number of Flankers procured by both China and India.
In effect, the Chinese paid for, and got what was readily available, whereas the Indians pretty much funded the entire development of the MKI from a base very similar to the MKK. The Bars is off limits to China because it was pretty much entirely financed by the Indians. Just like how the AESA on the UEA Blk60 F16s are off limits to all other foreign customers of the F16. That's not preferential treatment, it standard industry practice. At the end of the day, the Indians are still relying on Russian made parts to build their MKIs, they get their birds many years later than the Chinese, and they are not even close to completing the production of the original order.
Far from withholding their top tech, the Russians were constantly trying to get China to invest in one advanced radar concept after another. The Chinese ordered a few test sets and never bothered to ring the Russians back. If China had coughed up the cash, Russian radar firms were literally lining up to develop PESA and other goodies for them. Instead, China opted to invest those funds in domestic radar firms, and that seems to have paid off.
Source codes are almost never shared, that is pretty much standard practice. Black boxes are common on America and European types, and the Russians may indeed use these more in their designs, but black boxes are more like your warranty seals on electronics. They are there to make sure that if you open them, the manufacture will know or can find out. Rarely if ever do black boxes have the means to render themselves inoperable. Well, not publicly acknowledged anyways.
It is certainly possible that a black box could be designed to render the equipment inside inoperable if tampered, but that is getting very close to a 'kill switch', and if it was ever proven that certain manufacturers build kill switches into their weapons, well that would be commercial suicide, since it's only a tiny step away from that to have a radio receiver attached to said black box to allow planes to be remotely rendered useless or even disabled/destroyed.
Besides, even a black box designed to be tamper proof is only a mechanical design, and a similarly skilled engineer would be able to come up with a way to open the black box without triggering the booby trap. For example, if an American F22 ended up in Chinese hands, I have no doubt at all that the Chinese would eventually be able to access all black boxes on the plane and learn all it's secrets no matter what fail safes were designed in.
As with your warranty seals, the power of the black boxes is not that they are some super-difficult puzzle that no-one can open. The trick to them is that it would be almost impossible to hide the act if you did break into them, and it is the threat of what the owner of the back box would do if they were tampered with that keeps them close instead of some unbreathable engineering.
Sorry about the rambling nature of this post. It's late and I am tired. Off to bed for me before I stop making sense altogether me thinks.

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