>Even if it does (which is unclear), do you think Apple will be able to refuse if the Chinese government asks for them? I wouldn't be surprised of "the laws and regulations of China" say that Apple is required to turn them over.

Apple says that they respond to valid legal requests, but that isn't any different than when iCloud data was stored in the US. If you thought that Apple would cave to any request for data from the Chinese before, then there's no material difference by storing Chinese iCloud data in China.

Thinking that China doesn't have physical access to servers located on China (with all apple keys on it) is just not how real world works.