This article from yesterday's Metro Express newspaper is significant (rush translation follows, I'm supposed to be off to work):

"Entertainment venues forbidden from staying open at night" is not allowed to be bypassed

According to the new national laws that are coming into effect on March 1st, entertainment venues are forbidden from staying open past 2am. Because Shanghai has a lot of KTVs and these are doing booming business, the KTV owners say that they will comply with the law by allowing no new customers onto the premises after 2am, but that they won't kick out the customers that are present when "closing time" rolls around.

In reaction to this, city authorities have said that they will strictly carry out the laws promulgated by China's national government, no matter who the proprieter of the venue is. [The rest of this paragraph is Communist-ardor speech about "有关部门" and "作出进一步的工作布置“ that I won't translate because I can't do it justice in the 30 seconds before I head out the door.]

That second paragraph is like both a veiled threat, and at the same time provides some wiggle room. Hooray for Chinese double-speak! which allows us to have Prohibition-like laws without people getting up in arms. I wonder what the Dragon Club and Cotton's have to say about this new law.