Actually this isn't the case. I did some reading on Zhu-ri-he exercise. Despite the fact that the blue side used inferior equipment, it didn't really matter since the exercise used "laser" as simulation munition. The guns on the Type-59s have the same penetrative power as M-1s in the simulation. The rules are actually pretty biased towards blue. Here are some examples.
1) One shot from a "blue" tank is all that's required to take out a red tank (since they are simulating M-1 Abrams).
2) If the red vehicles/personnel don't perform proper maneuvers within a predetermined time window, they are automatically out since presumably U.S. air support could take them out easily within the given time frame.
3) Blue tanks/personnel could respawn immediately after getting taken out (pretty sure that there is a limit to the number of times they could do that
).
Basically the blue side is a rough approximation of the best that NATO has to offer. Red is pretty much expected to lose every single time and basically improve their tactics. The outcome of the game doesn't really matter that much.