Video games are made NOT for profit.
Personally, after decades of observation toward the video game industry, I have come into the conclusion that video games (and probably also other type of entertainments) aren't made primary for profit.
Capcom surely released Tekki Taisen (Iron Rider Big War, a.k.a. Steel Battalion) not for profit.
Anyway. The Chinese government reasoning to ban things that negatively potrayed it seems to be reasonable.
Let see... If there's a video game titled "Beat up dad" that had the same theme as its title, do you think that dad will allowed it to enter his home?
But I doubt that the Chinese government do this banning under its own will, considering that the Chinese government probably isn't an independent force right now and just following order from the outside. If it decided to ban it, it probably would just confiscated any copy on sight instead of announcing its banning (that its banning probably wouldn't be enforced really good).
Of course, the Japanese government seems to shared the same fate too, for having little power at all on banning things (there's a difference between banning things because you want to and because you was ordered to do so). Considering the publishing of "Medal of Honor: Allied Assault" in Japan (which again proves that video games are made not for profit). Come on, the Japanese government edited the text book to potray Japan in a good way in World War II, don't you its strange they would let their youngs (children and young adults) be 'educated' with video games than text books? It's kinda scary though seeing people killing their fellow countrymen, eventhough that it's just a reenactment of a past battle.
As for Comand and Conquer: Generals.
I think that Chinese was one of the two good forces (the other one was the U.S.A.)? The bad force of one of three main forces in C&C: G I think that it was the Global Liberation Army (kinda a reversal to C&C's Global Defense Initiative, and similiar to C&C's Brotherhood of Nod), a stand in for the P.L.O., the I.R.A., the C.N.R.T., the Base, and so on that exist in real life.
As for online game.
Well... The Korean seems to be quite good at developing online games (Ragnarok Online, Lineage, etc).