Hi Juneko, did you ever go to the wool market at Dongdaemun? I wrote a post about that last winter: http://www.knittinghelp.com/knitting...pic.php?t=7985
I've been searching for a similar market in Beijing. I know that China is the biggest textile-producing country in the world and the professionals must have a marketplace, but I haven't found it yet. I have some names of markets still to check out, though... I will find them!
As for the LYSs, they are fair. There are apparently quite a few; I was able to find one only a few hundred meters outside of the university, in fact it was that accidental discovery that got me started on knitting again this winter. The yarns are good quality and there are several imported brands, mostly from Australia/NZ. One thing I don't like is that most of the yarn is behind a counter and you have to ask (in Chinese) if you want to feel it.