What you forget is that no one wanted it.
Unlike in the US, n China the central government has very little control. As such it had no real way to "push" an OS.
Second, red-flag had very little going for it. It was no cheaper, in fact, when you consider training costs, the cost is higher then XP, which is free in China. Keep in mind, you are in a culture with no meaningful understanding of free other than free beer. Linux is harder to use and there is less (user) software. Linux needs to be configured to individual machines instead of simply 'ghosting' a copy onto a drive and pluging it in as is done with XP (no, it doesn't work well; but it does work).
The only real argument for Linux, to users, is that it is free; but, in China all software is free (just search on baidu). In worst case I can spend real money at a legitimate market and get a copy of XP or office for about $2 USD. The super configuration ability of Linux really isn't true; and where it is all it means is "easy to break and near impossible to ever get working in the first place." We have one guy here in the office using Linux (Ubuntu) but he is using it because his hobby is tinkering with his OS. I gave it a solid two week try; but, i was loosing too much productivity and had to stop once the work load picked back up.
Oh, and the most popular IM program in China QQ does not work on Linux (yes, I know Tencent says it works; but it doesn't and no one can make it work. The instructions on the web are for old versions and no longer work).