They were "horror stricken" because the guest asked to pay, which was something totally unimaginable in terms of Chinese customs (not to mention the guest was a

They were "horror stricken" because the guest asked to pay, which was something totally unimaginable in terms of Chinese customs (not to mention the guest was a foreigner), especially in 2001. If the host didn't pay for a meal he'd lose all his face for all future interactions. Don't know what impression the OP got out of it but it sounded like you/the OP got some misunderstanding out of it.