As far as I know China not allow online gambling although I don't have source news. Since bitcoin isn't traceable if don't know who own the address perhaps China people's would use VPN. And I believe most of legit crypto-currency gambling doesn't ask for KYC. So China player can get benefits of it.
I don't think gambling is totally banned in China. Lottery especially, is kind of legal in parts of the country
https://en.m.wikipedia.org/wiki/Gambling_in_ChinaLottery is still gambling I guess.
Maybe gambling is tightly controlled over there or something.
Maybe China has not banned gambling, but bitcoin gambling is something new, and the gambling itself connected to the internet, so perhaps there is a regulated or something like that. But even if bitcoin gambling is banned in China, I guess people will use VPN to visit on the gambling website, and they can play gambling. Besides that, I think people in China will search the gambling website, which doesn't ask for KYC to prevent the government from investigating their account.
China has actually officially banned gambling for its citizens and anyone involved in gambling will deal with the law. For the lottery itself, it may still be legalized because the Chinese government does not consider lotteries as a form of gambling such as mahjong, poker, etc. Well this is a different perspective about the lottery between us and the Chinese government.
But the Chinese government still prohibits all gambling activities, especially online gambling such as poker, casinos etc. For more details, please refer to some laws on gambling in China:
http://www.china.org.cn/china/LegislationsForm2001-2010/2011-02/11/content_21899017.htmFrom what I read China legalizes gambling, sports betting and similar casinos but with the condition that it is not online gambling and poker,