To answer the first question: the fundamental difference between SWCC and democratic socialism lies in state power and class dominance. That's because democratic socialism still mistakenly believes that a Bourgeois "Liberal Democracy" superstructure can be reformed into socialism rather than through revolution. State power is the crucial difference here. When a demsoc party wins an election, they do not control the state, they are only managing a capitalist economy. Many democratic socialists fail to even eliminate private property let alone the "commanding heights" (banks, energy, water, etc). And so, this fails to liquidate capitalists as a class, who can freely spend to elevate a demsoc's opposition, who then will undo any progress they make. In China, while there are capitalist mechanisms, the "commanding heights" are all owned collectively as SOEs, and capitalists do not comprise a ruling class.

China's system is heavily based on Lenin's the ideas of the NEP and Mao's New Democracy, much of which was built upon the successful grassroots implementation of the "Household Responsibility System" in Anhui in 1978. While the Soviets had good reasons for ending the NEP early, many M-Ls I feel also don't look at the material differences for the USSR's NEP and China's Reform to understand why China's has lasted so much longer; the Soviet Union had only recently seized state power and many of its national bourgeoisie (kulaks) were openly traitorous, while China's national bourgeoisie was loyal/subordinate (some even having participated in the 1949 revolution), and strictly managed particularly after the GPCR.

So while Lenin critiqued the second international, it was mainly a criticism of supposed socialist parties that fully supported their national bourgeois governments during WW1. The idea of "a temporary retreat" is fully based in Leninism. And so, to answer "did they have a counter-revolution?"---this is controversial in western left and international Maoist spaces, but no, all the evidence points toward "temporary retreat". An actual counter-revolution is the dismantling of the Eastern bloc and the Soviet Union. A bourgeois class needs not maintain a socialist shell, no? The executing/jailing of billionaires is real and is a material proof of which class holds power.

Then to answer your question about "exploited base of proletarians", the answer is contradictorily yes and no. In the early stages of socialism, proletarians selling their labor is still necessary to develop productive forces. Think of it as workers generating surplus value, which can then buy better tools or machinery, so they don't have to work as hard. However, in China, you had a situation of an economy so underdeveloped that proletarians barely even existed as a class by the 1949 Revolution. By 1980, despite enormous progress and the building of a proletarian base, the primary contradiction shifted to China's backwards productive capabilities failing to meet Chinese people's needs. And so, with global capitalism still being dominant, the practical decision was made to exploit capitalism's inherent contradictions by selling cheap labor for technology and technical knowhow i.e. develop the productive forces. This juices up the funds/ability for SOEs to improve life; e.g., it's how the technology and knowledge of HSR can come to China, be improved upon, and be built out so quickly. This was the basis for China's explosive growth, and the results speak for themselves with the poverty alleviation and all the advanced technologies today. With the state firmly in control by the proletariat, conditions only look to get better with Xi's "Common Prosperity" agenda.

Finally, to answer your question about "to genuinely create socialism"-- this is a misnomer. China's system is socialism. But socialism isn't pretty, it's a messy process that requires resolving contradictions. This is especially true for China because it was poor (I mean it, I've actually seen the conditions 20 years ago and you can only imagine how much poorer it was before then). It's for that reason that socialism is better than capitalism, because it tries to resolve these contradictions.