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I am also with C, but I think that using the pronoun ITS in that way is a little ambiguous.
Well done. C is the correct option. As for the usage of its, pronoun ambiguity is not a huge deal on the GMAT, especially when all 5 options use the pronoun the same way. Think of it as something that should be avoided, if possible.
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The Yongle Encyclopedia was an attempt by the Ming dynasty to save all Chinese knowledge for posterity, however, fewer than 400 of its more than 11,000 volumes surviving today.

(A) however, fewer than 400 of its more than 11,000 volumes surviving
The verb -- survive is needed instead of the VERBing form -- surviving. INCORRECT.

(B) yet fewer than 400 of more than 11,000 of its volumes survive
Placement of "its" is wrong. 400 of what? The sentence is awkward because of the wrong placement of "its". INCORRECT.

(C) but fewer than 400 of its more than 11,000 volumes survive
CORRECT. "its" correctly refers to the Yongle Encyclopedia.

(D) despite less than 400 of more than its 11,000 volumes surviving
Usage of less than is incorrect. Less Than is used for UNCOUNTABLE.

(E) however, fewer than 400 of more than 11,000 of its volumes survive
Similar issue as option B. Incorrect.
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Can somebody please explain the difference between B,C and E.
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This is the sentence that option E leads to:

The Yongle Encyclopedia was an attempt by the Ming dynasty to save all Chinese knowledge for posterity, however, fewer than 400 of more than 11,000 of its volumes survive today.

One of the reasons that E is not correct is that it uses however to join two clauses. We can't use however to join two clauses, because however is not a conjunction.

More generally, we'd need something else there, like a semicolon ([clause; however, clause] is fine).
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