Microsoft has stated numerous times that piracy is rampant in China. That aside, they still invested millions into advertising Vista in that region. They even went so far so to place a huge ad on one of Shanghai's tallest buildings. The hope was that their improved piracy detection mechanisms would help them make it less of a problem than it was with XP. That's certainly not the case, with a mere 244 copies of Vista being sold in China in the two weeks following launch.
Obviously, the $1 price tag for a copy on the streets is going to be very attractive, especially with the enormous price tags the more expensive versions of Vista carry. In the past, Microsoft has petitioned the Chinese Government to work with (or perhaps for) them to combat piracy.