iCloud's Terms and Conditions in China Mainland
apple.com
apple.com
This is to "to improve iCloud services in China mainland and comply with Chinese regulations"
In the license agreement it's stated:
"You understand and agree that Apple and GCBD will have access to all data that you store on this service, including the right to share, exchange and disclose all user data, including Content, to and between each other under applicable law"
"You acknowledge and agree that we may, without liability to you, access, use, preserve and/or disclose your Account information and Content to law enforcement authorities, government officials, and/or a third party"
Was announced at October 01, 2019
The problem isn't really that the data is hosted locally, but that the servers with the Apple user data (and encryption keys to access it) are owned and operated by the Chinese government.