to my knowledge camping for foreigners is illegal in China but not enforced.

Camping in China is "supposed" to be illegal, but in reality no one cares if you do.  But be aware, some farmers may want a few Rmb for allowing you to set up camp in their lands. I have never seen any one camping out or hicthshaking in my travels within China.

I have not seen anyone camping out ether and it makes me wonder why there are so many stores that sell camping gear including small tents. 

With the huge increase in local tourism a few well selected  locations set up as camping grounds in the mountains etc with sites, showers and toilets would be very popular I would imagine. 

The only time I've seen people "camping" would be more like our definition of having a picnic.  They just pitch the tent more for protection from the elements than for sleeping overnight....mainly so they don't get a tan from the sun.  God forbid they "turn black".