iCloud Keychain stores the passwords, SSH keys, client side certificates etc for third party sites. That means that sites like Facebook, Google etc would be compromised on the biggest scale in history if Apple were to hand over encryption keys to the Chinese government. Not to mention the national security implications e.g. my work VPN credentials are in iCloud Keychain.
There is no way Apple would be stupid enough to allow this situation to persist without informing users unless they maintained the keys and it was a moot point. Otherwise they are inviting themselves up for all sorts of legal issues. Not to mention people who travel to China for holiday/work purposes.