If I remember correctly the The main reason why the club was founded and joined the KHL was to increase interest of the sport in the country, and to attract young Chinese talent to the sport. I don't know how well it worked, as most matches in China 2-3 years ago were played in front of empty stands. and last 2 years they played in China like a total of 0 matches...
And as for the mentioned non-naturalized / naturalized players saga, the problem is that any lawyer will easily succeed in any tribunal...since majority of players have like never been in China in their life yet. The IIHF rules state that the player must play in the country he wants to represent for at least 2 consecutive years. And that is the problem, the guys play for Kunlun, but due to the whole covid craziness, Kunlun is not playing in China at all. The club is even registered in Russia, players play and train near Moscow.
If you ask me I was never in favor of free quota for CHN male team (I think everbody here know it very well a couple of years already) I have nothing against China, they are a super sport powerhouse but a complete garbage in Hockey. I don't know if this is the right way to give free place to a country just because they organize the Olympics. But Well okay, it is how it works, they are the host, so whatever