It's plainly not encryption. The Chinese maps use a different reference datum (ellipsoid surface representing the shape of the Earth), and translation between coordinates in the two reference schemes (GCJ-02 in China and WGS-84 for GPS) is straightforward.
Why Google and other mapping services don't apply this transform has more to do with business decisions and the hoops they have to jump through to be able to work in China at all.
Why Google and other mapping services don't apply this transform has more to do with business decisions and the hoops they have to jump through to be able to work in China at all.