So don't store data in iCloud? It's perfectly possible to perform your own encryption and hold the private key yourself.
At best you can say that Chinese users will likely be no worse off using iCloud than they would using any other China-based service. Unfortunately that is no consolation for anyone who might have sensitive data.
I'm completely pro-privacy, but I need to ask: why would ordinary people's ordinary data need better security? Even if iCloud might be decrypted by the government. If it's data like bills, government issued photos of ID cards, family photos, it will most likely won't matter at all and the security is good enough, just like anything available.
Once you do have a reason to encrypt something, learning GPG, LUKS, etc. is not that hard or that technical.
GPG, however, has proven to be virtually impossible to properly use and almost no one does, even in the hacker crowd.
Exactly. It could be something as simple as guilt by association. Even though you might not have done anything illegal yourself, you may have the contact information of someone who is on a watchlist or has been convicted of a crime. For example, China is looking into developing a social credit rating system, any association an individual has to persons who the government consider less reputable could have real impacts on their credit rating.
You can say better than that. iCloud is more secure than your average service (especially in China). It end to end encrypts the most sensitive data (keychain) for example, and iMessage has managed to stay alive so far.
I should also add that locked notes in iOS are end-to-end encrypted. Those are pretty easy to use for folks who are not "technically sophisticated"; you just unlock them with your face/fingerprint.
When you add that to secure keychain storage, iMessage (broadest end-to-end encrypted messaging system permitted in China), secure Siri data (imagine what a government could monitor if they owned the Alexa cloud)... Apple offers a significantly more secure service that is still easy to use by the general public.
It would be nice if Apple gave all of its Chinese iPhone users a nice big prompt that told them their iCloud/iMessage backups can be accessed by the Chinese government from that point forward, and maybe even tell them how they can disable it in the settings if they want to. It's the least Apple could do.