I understood the term 'Californication' and all other verses coming before and after to mean the erosion of culture and rampant unchecked exploitation in the United States all for the sake of chasing the almighty dollar.

The bit about psychic spies from China is probably just another fantastical element to allude to California's status of being the center of fictional entertainment, that is, Hollywood, LA. Or, like the line about Swedish girls dreaming of silver-screen quotation (they're hoping to one day star in a movie that gets popular enough that it's quoted by everyday people in the same vein as Star Wars), it also alludes to foreigners; this time referring to ones who are portrayed in American media as evil mysterious outsiders with an agenda to subvert the US government. At the time the song was written, 1999, the Soviet Union had long been dissolved and its successor state Russia was busy fighting yet another war with a breakaway state - not to mention suffering from an horrible economic crisis. It had long since passed from the minds of Americans as the foreign bad guy, so that role had shifted to the remaining big (nominally) Communist nation: China.

>This is reinforced by "is this your chin or is that war you're waging?", to celebrities the lives of innocents are worth less than their chins so they wage war by killing them, disgusting...
I don't think it's meant so literally...
Rather it means that celebrities are held to such a standard and marveled in American society that the news is filled with vapid nonsense about every time one of them so much as farts in public meanwhile actual tragedies get glossed over. Remember it wasn't that long ago some scandal about Johnny Depp's wife shitting her bed was all anyone ever talked about for a few months. Perhaps celebrities themselves aren't as much at fault for the spotlight constantly shone on them, as much as it is the media. But then again, if they're aware of this then why don't they do something about it? Could they do anything about it?

>"Space may be the final frontier but it's made in a Hollywood basement"
This just means that space is something most of us will never get to experience in our lifetimes unless we work in a field that studies it like NASA, and even then, you'd have to be an astronaut if you wanted to go into space itself. That's a commitment that goes beyond simply wanting to visit space for a couple minutes. So the majority of the world will never get to see space outside of what Hollywood shows us. Maybe this causes misconceptions about space, and in a broader sense, real things that are out of our reach. Or more cynically, Hollywood can choose to lie about things that are real but we would never know if it were true since we can't see it for ourselves.