Compared to whom? While China certainly has a lousy record on "protecting minorities" in general, it isn't even one of the worse abusers when it comes to homophobia. Most Asian countries are anti-gay.

In Malaysia, India, Bangladesh, and parts of Indonesia (those states with Sharia)… homosexuality is punishable by life imprisonment. It goes without saying that particularly isolated regimes like North Korea and Burma routinely execute "deviants" without trial.

Authorities in China, Vietnam, and South Korea have a long history of petty harassment. They'll typically shut down gay businesses and censor gay-related media on trumped up charges of "public immorality" (even though none of them officially ban sodomy). Japan basically pretends it doesn't exist. Though there's plenty of social stigma to make up for the lack of official harassment.

Taiwan and Thailand are the only nations in the region with any credibility when it comes to LGBT rights. But even these states have been reluctant to tackle the issue of same-sex unions in any meaningful way.

I assume 'lagging' refers to how outdated the Eurogames organisers are in their belief that China has a gay discrimination problem that requires their resources. 20 years ago, sure. Nowadays, the courts are no longer prosecuting homosexuals for simply being gay.
Gay rights may not be as evolved as Canada, and many gays remain in the closet. Still, I had a very gay ol' time in China. Gay bars and nightclubs are not indisciminately closed down like they were in the past. Beijing's gay nightclub, Destination, has just expanded (and could certainly use competetion). Shanghai has some great gay venues, from bars to clubs.
Plenty of Chinese guys wish they had the right to marry their guys there, but most will not leave China just to do so and don't live in any fear of criminal prosecution for being openly gay.
Most gays do not come out to their family and probably won't until a Chinese version of "Will & Grace" hits the airwaves.