This is part of their RMT mitigation system. Specifically, players can exchange in-game money for extra game play, or can get in-game money by buying people additional game time. The "PLEX" in-game object is how this type of transaction is performed. The plex is tradeable and has an option to extend your account time in its context menu (which consumes the plex).
how would the police prove that Freddie hadn't been killing dwarves or whatever for six months
Because blizzard logs this kind of transaction. All they would have to do is subpoena the logs.
I suspect that the article is actually blowing out of proportion the MMO currency trading side of things. A quick googling shows that evidently gambling is illegal in china and the government has gone to lengths to crack down on it:
A) MMO currency trading is not a notable contributor to China's GDP
B) Virtual currency makes bypassing gambling restrictions easier
C) China is genuinely interested in curbing gambling
It sounds to me like banning on-line currency trading is a no-brainer as it will criminalize the entry point people would use to get around local gambling restrictions. Any problem with MMO currency trading is purely incidental.
And I doubt China cares about the cost the rest of the world pays for [Titansteel Bar]s on the auction house..
Actually, the opposite IS true. It just takes thousands of years longer..