it is because they dont understand how sensitive the mic is. and they are inconsiderate to people around them, and it is easy to fall into the same habit because you have everyone around you doing it. i have caught myself doing it a few times

No idea but I do openly laugh at them, I also tend to mock them by pretending to answer my phone and yell into it as well, the funny thing is you guys should try it!! The Chinese come to a full stop and stare at you wondering why you're yelling on your phone, this includes the idiot that was just yelling on their phone!!!! This place bewilders a person...

My friend told me it's out of respect for the person on the other end, to make sure they hear you.

I think the question should be: "why do people in China yell?" Period. 
I just had my mother-in-law notice this (we were back from a CNY dinner) and this was her reply: "well it's loud because there's many of us, you guys in Italy aren't as many as we are here". 
Good point, if only my family reunions in Italy didn't have twice as many people as the ones that were there tonight.

In fairness, we Puertoricans also tend to yell in the phone so it is not just a Chinese thing. 

They scream because they think the person on the other line won't hear them esp on public places. 

Yes its common , I tell them , "Thats why you have a phone , so you dont need too yell" , but many Chinese are "loud " anyway , its the US of the East .

They're mad as hell and they're not going to take it anymore.

I would tend to agree with MickeyG.

Have you ever been on an Amtrak Acela train between Washington and New York?  The decibels on the mobile telephones can get very very high and very very loud.

On the other hand, some handsets sold here ... welll ... the reception quality is less than stellar.  I have had handsets that were just great and other handsets that were terrible.  Perhaps that might be a small part of it, too.

If only the world was Japanese; no phone usage allowed on public transport.