Usually, they only censor the explicit content. But this is the first time that AI tools were used to directly alter the content of the original film.
By the way, the film has been withdrawn from a wide release in China after receiving too many complaints.
Video game industry is not the same as distributing imported films.
As I wrote in another comment to you, there are only two film companies that have the exclusive rights to distribute imported films, 中影 and 华影, and these are the two companies that have dealt with the censorship bureau for years. You are making a lot of assumptions about a topic you barely understand.
In short, very few people thought the film would even have a cinema release in the first place due to the explicit content - especially gay marriage and some of the body horror contents. People were in fact surprised to see it getting a wide release.
Yeah which is ironic because the videogames industry is significantly bigger than the movie industry now.