Security technologist Bruce Schneier notes in the Guardian that border agents in the U.S., Britain, and other places can search your electronic device (laptop, mobile phone, etc.) upon demand. In the U.S. they can keep the device for an extended period to examine the contents. If you encrypt the disk, they'll just ask you to type in the password. Refuse and you'll regret the time you spend getting to know the agents real well.
So what to do with your sensitive data?
One suggestion is to encrypt just a small portion of the hard drive with the data. Leave the rest encrypted or not, but the little bit would likely remain undetected, at least at first look.
While customs agents might poke around on your laptop, they're unlikely to find the encrypted partition. (You can make the icon invisible, for some added protection.) And if they download the contents of your hard drive to examine later, you won't care.
That's not a perfect solution, and an alternative is to put the sensitive data on a small memory card which you can carry on your person. In the end, however, you'll still be at risk unless you have nothing to be discovered.
...your best defence is to clean up your laptop. A customs agent can't read what you don't have... Delete everything you don't absolutely need. And use a secure file erasure program to do it. While you're at it, delete your browser's cookies, cache and browsing history... Some companies now give their employees forensically clean laptops for travel, and have them download any sensitive data over a virtual private network once they've entered the country...
The Guardian article has more detail, and you can also look into the Schneier on Security blog and his Crypto-Gram monthly newsletter. Schneider is a sharp guy and a true security expert.
According to Reuters, starting May 1, 2008 China will restrict air passengers on domestic flights (except first class) to one piece of carry-on baggage. This restriction, in advance of the Olympics, was instituted "to guarantee aviation security." I guess first class passengers are less of a threat...