This topic has been under much discussion recently, and I answered this question on Quora.com, which I add here, albeit slightly edited.
I identify the following factors as being behind China’s success at the Olympics. Neither one alone is enough. Their dominance is a marriage of all of them:
1. Talent pool. With a population of 1.3 billion you have a pretty good chance of finding a few hundred that are world-class athletes. And you can afford to be really picky. At the end of the day it all boils down to ability, and China has more people with the latent talent that they can find and develop. And they do, on a scale like no other country. China’s National Games have the same number of competitors as the Olympics. Only 4% of them make the Olympic team.
2. Large delegation. China sends more athletes than most countries. A country can’t win 100 medals if they only send 12 competitors. Quite simply, China can win more because there are more people to do the winning.
3. Playing the percentages. Related to point 2. China enters at least one athlete into almost every event, and often several, increasing the chances of getting their hands on the medals. You have to be in it to win it after all, and China makes sure it’s in everything.
4. Diversity. Related to points 2 and 3. China no longer focuses on just a few sports like some countries do. They have their strengths that get the lions share of money and resources – diving, table tennis, gymnastics, badminton, shooting – but they don’t ignore their weaknesses now. They have made huge improvements in things they have been traditionally weaker at like rowing, sailing and swimming.
5. High-yield events. China is good at at least one sport for which a lot of medals can be won: gymnastics (18 sets of medals). Besides the team and individual all-around events every apparatus has an individual event so the same athletes can double, or even treble, up. A single talented gymnast can win more than a group of handball, football or basketball players put together. By comparison a track runner usually specializes in one event, maybe two, so you need to field a large athletics team to be in with a shot at more athletics medals. Badminton, Diving, Weighlifting and Table Tennis- other Chinese strengths - also offer multiple medals, and China dominates in these sports.
6.Sports academies. Kids with little academic aptitude and/or strong athletic potential attend dedicated sports schools, where they train in their chosen field almost every day. They are basically full-time athletes from childhood. Not many western athletes have the luxury of skipping out on their maths homework to practice sports. Chinese kids hit their 10,000 hours pretty early.
7. Funding/subsidies. Chinese athletes don’t work, unless you count training all day every day as their job. They receive government handouts to do that. Many western athletes have to fit their training in and around their normal lives, such as getting up at 5am to swim before college classes or going running after work in the evening. China’s system is similar to the Soviet one of state-funded, full-time amateurs.
8. Competitive culture. Make no mistake, life in China can be pretty cutthroat at times. Children are raised to always fight to be first. Heck, even getting that one free seat on the bus is a contest. This country doesn’t breed losers. Or rather, it doesn’t acknowledge them.
9. Short man syndrome. The Chinese government, and many of the people, really do believe the world is against them and that they have something to prove. This motivates them to show the rest of the world they are just as awesome as they are. Curiously, Mao Ze Dong believed more in the friendship aspect of the Olympics. The current government sees it as “us against them”.
10. New-found assertiveness. Related to point 9. For a long time China was bullied by foreign powers and was the “sick man of Asia”. The Party does still get criticized a lot today, even if they tend to exaggerate it. Sports are one field in which they can genuinely compete and show the world they are here and are no longer weak. This was why in 2001 they launched a program with the specific intention of winning medals and competing with the big boys (read: USA and Russia).
11. They take it really seriously. Winning at the Olympics is a big deal for Chinese people. While every country likes success at the Olympics, few value it as highly as the Chinese. It’s a major source of national pride in China. (I wonder if they know that and if that belittles their achievements in any way? There’s no fun in winning if the others don’t care as much after all.)
12. Training methods. China has been traditionally strong in sports that can be trained for with repetition. They are less successful in sports that rely more on improvisation and team work. They can commit dive and gymnastic routines to muscle memory, which suits their style of learning. Chinese kids are drilled in everything. Why should sports training be different? That training is very strict and disciplined. Coaches put their athletes through the ringer.
13. Foreign assistance. For certain sports that western nations have been historically strong at China hires western coaches to train them. You’ll find that Water Polo, Basketball and Swimming athletes get their advice from foreigners, who are more aware of modern sports science. So far only swimming has seen a return on this investment, in terms of medals anyway, but they have improved in other areas.
14. Tactical funding. China has long had a strategy of recruiting athletes to sports it believes it has a realistic chance of winning. In terms of resource allocation they partly ignore the glamour events (e.g. athletics) in favour of less-popular ones (e.g. shooting), although I think this is changing (e.g. swimming, see points 4 and 13).
15. Fear of reprisal. Any athlete that fails faces imprisonment, torture and sometimes execution by the government upon their return.*
*okay, I might have made that up
One final point worth bearing in mind - related to point 1 - is that China actually isn’t all that successful really, if we compare it to other countries that have fewer resources and make less of an effort to be number one. Given what they put into their Olympics training they ought to be winning more. In 2009 there were 10,991 elite competitors at the National Games. There are 380 of them at the Olympics. That’s a lot of waste. Roughly 96% of Chinese athletes are “failures”, something they prefer not to mention, but the real story is that for every medallist there are hundreds on the scrap heap. I can’t imagine any other country has such a high number of rejects. It’s another example of “playing the percentages”. If you train a large enough number of people you’ll produce enough top-class sportsmen and women. They can afford to do it, but it’s inefficient. For me, the truly successful nations are those that get the maximum yield from minimal resources, such as those with small populations, little money and/or fewer world-class facilities.