This is a legal requirement to operate the service in China. Apple’s choice is between offering iCloud in China or not offering it at all in China, not between offering it with local servers or with out-of-country servers.
This is not even remotely true, even if you define "major tech company" to mean "major US tech company".
Both AWS and Azure have actual cloud regions in China (delivered with a local JV partner just like Apple's cloud services are).
Even Google operates there in various ways - they have four offices there, they manufacture hardware there, and they sell tons of ads to Chinese companies via their local subsidiaries (for display outside of China obviously).
What Apple does in China is more than complying with local laws. They appear to be exceptionally proactive in staying in the regime‘s good graces.
Can you provide a reference for Apple's JV partners being government owned? Any company in China of course has to do as the Party tells them to, so I guess the difference is largely academic, but I haven't seen it mentioned before that Apple's China partners are government-owned.
https://techcrunch.com/2018/07/17/apples-icloud-user-data-in...
There are conflicting reports and vague language around how exactly the keys are handled.