From China Digital Space
Chinese netizens have created a large number of mythical creatures that sound the same as Chinese profanities or sensitive words. The popularity of these mythical creatures can be traced to fictitious entries created in 2009 on Baidu Baike, an online Chinese encyclopedia. These fictitious entries were created in response to increasingly strict censorship of online content which sought to eliminate all forms of profanity. Netizens avoided the censors’ keyword filters by inventing clever homophones for vulgar words that sounded like mythical creatures. The most famous of these mythical creatures, the grass-mud horse, is a homophone for “fuck your mother.”
News of these mythical creatures spread quickly on blogs, Tencent QQ, Baidu Tieba and other websites, and virtual habitats were created. Soon, images, faux-documentary videos [zh], and songs were released, gradually developing the lore surrounding these mythical creatures.
While many of the terms simply indulge netizens’ desire to say something raunchy in a cute way, many terms have developed layers of political significance often related to the cat-and-mouse game between China's netizens and Internet censors—for example, the battle between the grass-mud horse and the river crab, or the migration of the valley dove.
Lists and introductions to the original ten Baidu mythical creatures have been compiled by Wikipedia and Danwei. Also see Grass-Mud Horse Lexicon entries on all that comprises the Grass-Mud Horse Ecosystem.