A good example of "evil cannot survive without the sanction of the victim" is the Soviet Union. With the USSR, the western governments avoided trade with an evil government. With China, the western governments has decided to take a different route. Most of China's economic growth has come from western investments and western consumerism. While it's not China's fault that the western economies are in declined, China's growth is held up as a model and that can be used as propaganda by socialists in the west to drive an agenda that will accelerate the western decline.
How is buying goods from China not a compromise with evil? What principle makes China different from Iran?
The question asks, in effect, how China differs from an "evil empire" and "slave pen" like Soviet Russia or Iran. I do not see that description as necessarily as accurate in regard to present-day China as it was at the height of China's implementation of Marxist-Leninist totalitarian dictatorship during the 20th Century. That description is still accurate in regard to nations such as Iran (totalitarian Islamic theocracy), North Korea (Marxist dictatosrhip) and Cuba (Marxist dictatorship). But modern China seems to have "mellowed" considerably since the full-blown Chinese communist era, as has modern Russia, though always precariously, given the absence of fundamental, explicit philosophical change. China today seems to encourage Western companies to invest in manufacturing plants in China, along with far more open travel to China by Western producers and residents of nearby Asian lands, especially Taiwan. China also seems to have shown restraint in changing the system in Hong Kong from its British heritage to a more direct kind of Marxist domination. "One country, two systems" was the slogan I remember hearing in the news at the time of Hong Kong's return to Chinese control. And Shanghai today is a major center of production facilities built by Western companies seeking to reduce their manufacturing costs through inexpensive factory labor.
As of July 2012, [U.S.] debt held by the public was $11.12 trillion, while the intra-governmental debt was $4.81 trillion, to give a combined total public debt outstanding of $15.93 trillion, roughly 103% of current dollar GDP. The public debt has increased by over $500 billion each year since fiscal year (FY) 2003, with increases of $1 trillion in FY2008, $1.9 trillion in FY2009, $1.7 trillion in FY2010, and $1.2 trillion in FY2011. As of February 2012, $5.1 trillion or approximately 50% of the debt held by the public was owned by foreign investors, the largest of which were China and Japan at just over $1 trillion each. As of June 2012, nominal GDP of the United States was $15.59 trillion.
While economic considerations do not override morality, $1 trillion remains a huge burden to owe to China, one that must be considered in any proposed policy of boycotting Chinese-made goods. It also provides an incentive for China to continue to deal with the West peacefully, if China expects ever to be repaid (which would not matter as much to a determined war-mongering Marxist).
Update: Integrating the "Dots"
For those who may need additional explanation of how my various observations relate to the original question, I can offer the following elaboration.
The short form of the question is: "Is it moral to buy goods made in China?" As to what such action has to do with morality, the questioner elaborates: "How is buying goods from [made in] China not a compromise with evil?" As to why it might be a "compromise with evil," the questioner elaborates still further by connecting this issue to the principle that "evil cannot survive without the sanction of the victim." This string of connections also reminds me of the old communist saying that if you tell a capitalist you want to hang him, he'll sell you the rope to do it with.
My answer, in essence, is that buying Chinese-made goods is not necessarily a compromise with evil because China today does not appear to be the same kind of totalitarian dictatorship that it once was. If anyone needs elaboration on the connections between dictatorship, morality, evil, and "sanction of the victim," it's all explained further in the literature of Objectivism and concretized dramatically in Atlas Shrugged.
The original question also asks: "What principle makes China different from Iran?" My answer, in essence (to repeat), is that China today does not appear to be the same kind of totaliatrian dictatorship that it once was, unlike Iran, which still is a totalitarian dictatorship (albeit a religious one, i.e., a theocracy).
As I also noted in my original answer, the topic of the question is trade with China and its moral status. The U.S. debt position with China (and other countries) is becoming a very urgent economic issue. One cannot rationally discuss trade with China without considering the debt issue, which is a key aspect of the total context of trade with China. If China's policies toward individual rights are an important issue, the U.S. financial debt with China (and other countries) is just as big an issue today, if not bigger -- equally deserving to be a target for protest, if not more so. And it's a moral issue as well as a financial one, since U.S. spending and taxing policies are heavily driven by altruism. One may wish to approach moral issues in a piecemeal fashion, apart from the total context of trade with China, but all aspects of the full context are interconnected, with man's future survival ultimately at stake.