It's more likely to be done through viruses and spywares like the Beijing 3721 thing.
Assuming no spyware or virus problems, I would think it's being done at the ISP side.
Edit their HOSTS file to point to Baidu when users use Google, Yahoo or MSN. Or they don't edit, re-route the whole traffic. But they would take up significant amount of time and users will notice it and set up another routing table for it.
why china so pissed abt the dalai lama
fyi, they are so pissed at dalai lama that they have already set law to ban him from reincarnation... -_-!