It's not that, though. It's that the game allows players to (gasp) imagine attacking China.
Perhaps the Chinese government are actually astute and realise that their ability to control the Chinese people is fragile and anything, even a fictional representation of insurrection could tip them over the edge into thinking 'hey, why not actually do this!?' ... or perhaps they're simply paranoid. Either way, it doesn't bode well for them, if this is what they consider a threat. If it's the former it will happen sooner or later. And if it's the latter, paranoia, they'll create a self-fulfilling prophecy by doing things like this (and, of course, much worse).
Flexible democracy is the best systems for a stable society, not a brittle authoritarian regime.