Definitely having a student argue with you and present a coherent, cogent idea is great!! Not only in China, but also in our home countries - and I don't think that the vast body of students at home want to do too much more than pass the required exams either.
And again, comparing apples with apples - how many 2nd language majors at home 'devoured' books in their 2nd language?? Of course they 'should' - but do they?? How many Eng Lit majors in their own language devour books outside of the required reading??
I think we need to be realistic in our expectations.
How many 'sit-in's do you have in your classes here? I regularly have extras in my classes - sometimes teachers, more often students. A couple will even do the assignments and the exam, knowing that this will not be added to their own scores, but to see how they are progressing.
They come from other majors, and want to learn. My English majors will sit in on other courses because they want to broaden their base. Genuinely how often does that occur at home? The eagerness for these students has not been crushed out of them.
Many of the teachers here do exactly what you describe, but a fair proportion of teachers back home are not much better, despite the 'advanced' teacher training they've had. I also have quite a few Chinese teacher friends who are keen to change the way they were taught, and teach using different methods.
When we move out of the ESL area, we can see that different methods of teaching, experimenting, lab work, research are happening. Students can take their place in overseas universities confidently, given the grounding they have here. Those going overseas are creative, intellectually curious, ambitious and eager.
This is by no means a perfect system, but there are many changes happening, being driven both by the government and individually. I think we need to assess how much we really know about what is happening here before we can broadbrush disparage the system.