Like many products belonging to companies who refuse to enter a joint-venture agreement with a government-owned shell organisation so they can steal 50% of the profit without doing any work - the 360 is effectively banned in China. Like most bans here though, it hasn't limited supply at all and every game store in every city will have a healthy supply of imported (smuggled) consoles. The authorities are paid-off or given discounts, and everyone is happy.
When I first decided to pick up a 360, I paid a visit to the "2 old ladies" (like most expats who can't read Chinese, all important locations are just named after their defining feature). Behind them was a range of consoles spanning the decades, including all versions of the 360. Of course, every single one of them came ready to play pirated games, and a blue folder of poor-quality DVD covers came out from under the desk to display the great range of software they had on offer. I was given a pen and piece of paper to write down the codes of the games I wanted, so they could easily rummage around and find them all in their shoebox catalogue system.
This proved surprisingly difficult. Firstly, Microsoft has a market in Taiwan, and it's not unusual to find mandarin Chinese versions of AAA games. Secondly, Japanese games are usually Japanese versions, because an English translation does little in China to make something more accessible. Trying to establish which games support which languages is a challenge. Preferring not to lie, the shopkeepers regularly went for an annoying "I don't know".*
Games are priced at 5RMB ($0.77) per disc - a price lower than a spindle of dual-layer DVD-Rs. They are silver-bottomed and professionally printed. There is a criminal organisation somewhere really putting the work in. They also come with receipts in case they don't work. In the UK, a store dealing in smuggled goods and piracy would be seen as untrustworthy, it's difficult to understand that here - it's a legitimate business. You get paperwork, refunds and free repairs.
Personally, I can't say I'm happy with copyright infringement, and you could argue that as a westerner I should be setting a better example. It's a fair point. This is the way the wind blows though, and it's a challenge to not get swept up in it. The last 2 legitimate games I bought from foreign websites didn't make it past customs (which is funny, because all those smuggled 360s did), and not a single game store in my city of 4 million sells the real deal. While I popped in to see if they had DiRT3 yesterday, a policeman came in to buy some dodgy Wii games for his son, and load up a 250GB portable hard drive with PSP games. This is console gaming in China - few know any different. When in Rome...
I live in the most populous country in the world, and it's regularly cited as an "emerging market", with foreign companies keen to get a foothold and find a new source of revenue. For media companies though, it's clearly a lot more difficult. So far only Nintendo are really trying, but when my official Chinese "iQue DS" came bundled with a flashcart, I realised there's simply no such thing as a software market here.
*Most Chinese games I've since bought have changed to English when my 360 is set to English. The only game I own that doesn't do this is Crackdown