>who gets to determine what is a "fictional character."

Japan turns out tens of thousands of comics containing this material every year. Although I think it may be impossible to determine whether the subject is a fictional character or not, that's not really solid grounds for making the content illegal, any more than it is an argument in favour for banning material in which people appear to be murdered, or appear to be drug abusers.

With regard to you drawing the child of your neighbor, whom you only see playing in the yard or walking from school, what's the issue with using him or her as inspiration? You're not using the same name; the only similarity is that of appearance. In what way does that harm the child? Why should it be illegal? You've presented it as a bad thing without justifying it other than by calling the people who enjoy the material 'perverts'. What about if I make an animation in which someone who looks a lot like my neighbor gets murdered? Why ought that to be illegal? This seems like a shaky argument to me.

It is a very wild claim (which I know you're not making here) that these comics contain drawings of regular children. A single look at the qualities of the drawings would show this. It is just as wild a claim that most or any portion of anime/manga characters in general are based off real people's depictions. Aside from parody, I have never seen a real person, other than popular politicians, being depicted in anime/manga, at least from a drawing reference.

>to photoshops of real children playing and put into sexual or quasi-sexual situations

This is already illegal in some countries, under a different law. I do not necessarily disagree with this material being disallowed, though. There is a very wide divide between manga material and photoshops or rotoscopes of real children. The division is so wide that a judge or magistrate could probably tell the difference, better yet, an expert could tell the difference too.

>all tween looking girls drawn anime style in highly sexualized positions or literally having sex with a slight blur.

Unfollow those people, I can't really see the issue. I don't follow baseball magasines, because I'm not into baseball. Or, find a way to filter out that content, which is frequently marked as 'NSFW'. Taking your point specifically though, both Reddit and Tumblr have taken steps to block the material, though of course sometimes it leaks through.

>Not the people who flee from it for rational reasons.

I want to be clear that I do not enjoy the material myself, and I do not blame the people trying to escape from viewing it. I also don't like a host of other things that are disgusting to me, and nobody would blame me for not wanting to see it, or blocking it, or not wanting it on a website I have. My point relates more to the aspect of making it illegal even to possess which is the current law in some Commonwealth nations, which I very strongly disagree with.

>I can't even check my steam activity feed at work because there's always a person or two who suddenly gets into overly-sexualized anime-style games and posts screenshots. None of those girls look remotely 18.

You should your tell your friend that you don't want to see that. I'm not really sure what point you're making here; saying that you don't want to see certain things is not an argument for censoring it at the country-level, even to criminalise possession. This last point is almost certainly also be said for legal pornography too, though I doubt you're in favour of making that illegal.