Most of the ones I know have money sent to them by their parents and live extremely frugal lifestyles.

They hustle, go looking for gigs, selling their music, producing new music going out there way to make themselves successful. Just look at Eminim and far he came from where he was. It's sort of like the same thing. THey play in underground music clubs and earn some money hoping one day to hit it big get a record deal and do it full time. 

It's not an easy life for most of them, that's for sure. Most of them have a day job or get support from their families but I don't think they necessarily come from rich families. The musicians I've met come from standard middle-class families and have other jobs to bring in income. Many also end up finding foreign girlfriends to support them until they make it big.

I'm not sure about the Chinese, but at home when I was in a band, it was more of a hobby, hang out and practice, play on weekends. During the day I had a regular job.

It's really quite simple.  (1) They play clubs in and around their home town.  If they're lucky, they become the house or one-man-band, 6 nights a week.  (2) They get a hotel lounge gig for 6 nights a week.  Live and eat at the hotel.  Shitty job, but it's a roof and a full stomach every day.  (3)  Uploading their stuff on Chinese websites like Youkou, they create a following and fan base.  (4)  If their stuff goes viral in China, they can then start to do concert tours around the country, reaping a percentage of ticket sales, merchandising and the like.  Not bad money.  (5)  If they make it big by drawing in the fans, they get to do endorsements in the way of TV and radio spots.  Good money, too.

And that's how they live.  The 1% of them who make it to the top, that is...  The other 99% give away their homemade CDs on street corners, 'cause nobody buys CDs in China anyway when they can get them for free off the dubdubdub.