I think you misunderstand. China is not a heavy-handed police state not because everyone is perfectly free, but because not everyone is unfree. The police simply isn't equipped to oppress everyone, so it only hits an unlucky minority. It's just that in China minorities can comprise millions of people. So while in the worst case you might be executed and have your organs harvested, in the average case you'll not even be paid attention to.

For example, when I lived in China my landlord violated several regulations on minimum unit size and fire safety, forged documents to hide this and probably also didn't pay any taxes on the rent I paid in cash. One day there was a notice by the police posted to the door, announcing that they'd come investigate. Some time later I got a message from my landlord warning me and the other tenants not to open the door. The police never came. I assume he either paid them off with a bribe or they were simply too lazy to follow up on their threat.

If China is a police state, then it's one where the police doesn't take their job very seriously.