I'm really surprised with so many answers (many of which that have no source whatsoever or simply irrelevant sources) no one has even asked what Chinese government actually claims it to mean, and only one had even mentioned the Marxist concept of the dictatorship of the proletariat.
Mao Zedong first published the article On the People's Democratic Dictatorship in 1949 (there's even an English Wikipedia page!).
"You are dictatorial." My dear sirs, you are right, that is just what we are. All the experience the Chinese people have accumulated through several decades teaches us to enforce the people's democratic dictatorship, that is, to deprive the reactionaries of the right to speak and let the people alone have that right.
Who are the people? At the present stage in China, they are the working class, the peasantry, the urban petty bourgeoisie and the national bourgeoisie. These classes, led by the working class and the Communist Party, unite to form their own state and elect their own government; they enforce their dictatorship over the running dogs of imperialism -- the landlord class and bureaucrat-bourgeoisie, as well as the representatives of those classes, the Kuomintang reactionaries and their accomplices -- suppress them, allow them only to behave themselves and not to be unruly in word or deed. If they speak or act in an unruly way, they will be promptly stopped and punished.
Democracy is practiced within the ranks of the people, who enjoy the rights of freedom of speech, assembly, association and so on. The right to vote belongs only to the people, not to the reactionaries. The combination of these two aspects, democracy for the people and dictatorship over the reactionaries, is the people's democratic dictatorship.
As for the members of the reactionary classes and individual reactionaries, so long as they do not rebel, sabotage or create trouble after their political power has been overthrown, land and work will be given to them as well in order to allow them to live and remould themselves through labour into new people. If they are not willing to work, the people's state will compel them to work. Propaganda and educational work will be done among them too and will be done, moreover, with as much care and thoroughness as among the captured army officers in the past. This, too, may be called a "policy of benevolence" if you like, but it is imposed by us on the members of the enemy classes and cannot be mentioned in the same breath with the work of self-education which we carry on within the ranks of the revolutionary people.
As is the case in the dictatorship of the proletariat, the word dictatorship does not imply a single or small group of leaders. It means political monopoly that can be held either by a person or group of persons, or as is the case here, a class.
Dictatorship of the proletariat thus means a way to organize the society where the proletariat as a whole holds the sole political power. How the proletariat organizes this political power is out of scope for this concept.
In Chinese political theory, once the working class had achieved its liberation (through the Communist party), they would not longer be proletariat because they would be owning the means of production. So they are called people instead, the Chinese term 人民 for which has strong political connotations (it is not usually used to mean any group of humans). In the particular Chinese context, for United Front reasons, certain bourgeoisie classes are also included in the people (small businesses and businesses in favour of revolution and nationalism).
The question of how the political power of the working class is organized is described by democratic, that is, the individuals belonging to the people will democratically decide the laws of the new Communist state (PRC); but the franchise is limited to people and people alone. The reactionaries, as the capitalists/landlords/etc. and other opponents are called, are not part of the people.
Mao recognized that the classes still existed in China and the proletariat cannot be the only class from day one. He also answered in the same paragraph to the apparent contradiction between the establishment of a state and the stateless ideal central to communism.
"Don't you want to abolish state power?" Yes, we do, but not right now; we cannot do it yet. Why? Because imperialism still exists, because domestic reaction still exists, because classes still exist in our country. Our present task is to strengthen the people's state apparatus -- mainly the people's army, the people's police and the people's courts -- in order to consolidate national defence and protect the people's interests. Given this condition, China can develop steadily, under the leadership of the working class and the Communist Party, from an agricultural into an industrial country and from a new-democratic into a socialist and communist society, can abolish classes and realize the Great Harmony. The state apparatus, including the army, the police and the courts, is the instrument by which one class oppresses another. It is an instrument for the oppression of antagonistic classes, it is violence and not "benevolence". "You are not benevolent!" Quite so. We definitely do not apply a policy of benevolence to the reactionaries and towards the reactionary activities of the reactionary classes. Our policy of benevolence is applied only within the ranks of the people, not beyond them to the reactionaries or to the reactionary activities of reactionary classes.
Now whether the ideal has been practiced as described is certainly answered in the negative. But here there is no contradiction on its face with the term as they are used in Chinese political theory.