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Seems like Apple is complying with the law. What’s the story here?
There's no easy way to break it in a general view that data privacy in China doesn't really exist. It just pops up in little reminders here and there in the media.
Their hypocrisy? Apple says privacy is a human right yet they're complicit in exposing all of their users data to a Chinese state run company. If privacy is indeed a human right then don't operate data centers in China until they change their policies.
Making money trumps human rights...first rule of evil do'ers
Apple has to do right by their shareholders. That’s how it works in the U.S., I’m not saying that’s good (it’s not) but it’s a fact.
iMessage and other E2E services that Apple provides won't be compromised unless the user opts in to iCloud backup.

Not to excuse this.

"all of their users data"

All of their users in China whose government demands it.

I don't like it either, but I don't see Apple stopping China from doing this and they can advertise privacy all they want elsewhere ... where it applies.

There is no privacy as far as the Chinese government cares, and I don't think Apple promises anything like that in China.

I do find it interesting that when BlackBerry was known to allow foreign governments to house the servers for the Internet edition of their device it was considered a huge security breach and there was an outcry in the press. The circumstances were the same, it was necessary if the company wanted to sell devices in those markets. However, there's no significant outcry when Apple does the same thing.
Times have changed. We no longer say "communist china" in every news article for example. Since 2008 the west has lost its legitimacy as the one true way, and we've been sliding since then. It doesn't help we've grown cynical of our own institutions.