Because apparently China is putting cameras everywhere, and it stands to reason they could have a module that monitors for PIN entry and records it. Even at my workplace in the US I try to avoid entering my PIN near security cameras.
As a side note I think people vastly underestimate how easy it is to capture you typing your password on a phone screen.. especially when you put it in the context of complaining about minor security implications of TouchID or FaceID. I would suggest it's typically much easier to watch you typing a password than to clone your TouchID .
If its been more than 48hrs since you last unlocked the phone or you turned off the phone, it will require your password again.
It's simply harassment, the kind that I would have expected in former Eastern Germany, Poland, Russia or any other state like that.
(1) https://blog.elcomsoft.com/2017/11/ios-11-horror-story-the-r...
My amateur understanding is the pin unlocks a hardware “safe” on the device which contains the actual decryption key, requiring physicAl access to the device even if the pin was caught on security cam.