Well, I'm a Brit and have retained all my .cn names, I complied with their new policies with no problem and all was fine.
There was a huge volume of spamming coming from some of these domains when the Chinese registry allowed bulk registration of many ultra cheap names, if I recall down to about USD 0.10 per name, I'm not saying it was the Chinese doing it, simply that millions of cheap names were registered and used as spam factories.
I'm not too au fait with the precise history, maybe jmcc could fill us in a bit more?
The Chinese certainly had to do something since their own ccTLD was being destroyed by spammers and knowing the Chinese reasonably well since I travel there regularly, they were obviously very embarrassed by what was happening and decided to clean-up their corner of The Net.
One of the perceived problems was that genuine .cn sites were being tarnished with the same spamming brush and were actually being penalised in the search engines. I can definitely say that I have seen a drastic improvement for my .cn sites.
A combination of cheap domain names and a largely unregulated TLD, HuskyPup, Basically the cost of the domains made them disposable so they had a massive rise in the number of .cn domains. I think that the Chinese government also needed the .cn ccTLD to be seen as competing with the super ccTLDs like .de and .uk for the Olympics. Its growth made it look impressive but most people realised that it was a bubble. The 28/Febuary count for .cn was 3,379,441 so it is still continuing to fall. Many of the junk (terrible pun) domains have filtered out of the zone but there still will be a few more to go. What is very interesting about the .cn ccTLD is that the registry has effectively changed it from being a largely open TLD to a managed TLD where some element of entitlement has to be demonstrated by a registrant. The .de has this to some extent with the requirement for a local contact for .de domains. Managed registries (where some entitlement has to be proven) tend to grow slowly and have a lower number of registered domains. Less stringently regulated TLDs have higher numbers of registrations but with their low cost, they lose some of the incentive for registrants to develop websites.