happiness isn't doing no work and getting free stuff. it is about improvement and finding meaning to your life. their methodology is on pg. 9. Basically they use a subjective satisfaction ranking.
China ranked high in satisfaction with children, relationships, personal safety, social life, feeling appreciated, health and national economic/political situation. In fact, China has the highest rate of feeling appreciated and has 80%+ satisfaction with social life. The only countries with better social life are Netherlands, Thailand and Saudi Arabia, with Indonesia tying.
In China it's actually really easy to make and keep friends. People keep in contact with high school and college friends all the time even if they move around. People change jobs less often so you might see coworkers for decades, and lots of companies are much more personal in management style. That is an "inefficiency" but people don't feel like they're a disposable cog in a corporate machine.
Then the only other countries to have >50% in national economic/political situation satisfaction is Australia, Belgium, India, Indonesia, Singapore and Thailand. Expected.