I think the overlooked answer in this conversation is that Apple doesn't need to modify their service for China at all. In in all countries, they hold the encryption keys for most user data. Only these things are E2E encrypted[1]:

    Home data
    Health data (requires iOS 12 or later) 
    iCloud Keychain (includes all of your saved accounts and passwords)
    Payment information
    QuickType Keyboard learned vocabulary (requires iOS 11 or later)
    Screen Time
    Siri information
    Wi-Fi passwords

You might say "what about iMessage". The link has that answer, too:

>Messages in iCloud also uses end-to-end encryption. If you have iCloud Backup turned on, your backup includes a copy of the key protecting your Messages. This ensures you can recover your Messages if you lose access to iCloud Keychain and your trusted devices.

This means Apple can produce the data a government is looking for in virtually all cases, and that's probably good enough for China.

[1] https://support.apple.com/en-us/HT202303