Apple’s Chinese puzzle continues even while negotiations with China Unicom for the launch of the iPhone there prevail, a Chinese version of that device has won regulatory approval for use in the nation.

Meanwhile company watchers continue to ask what happened to the recently stolen product prototype – will counterfeit versions of the product appear in time to dent Apple’s sales in China?

China’s State Radio Regulatory Commission has published its approval of the Chinese version of the device, which lacks WiFi but is a GSM / WCDMA cellphone complete with Bluetooth, an internal model number A132. Approval for sale of the product times out in five years.

Earlier this week conflicting reports emerged which claimed China Unicom to have secured the deal to distribute iPhone in China. That company later said, "Discussions are still ongoing, we have not reached any formal agreement.”

It’s pretty clear the deal must be heading to becoming final though, as additional reports explain new model iPhones for the Chinese market are already in production. There’s no way Apple would damage its margins by over-producing product in the absence of a definite route to market.

Meanwhile, the case of the missing iPhone – punctuated by the tragic suicide of a young engineer tasked with looking after top secret prototypes for Foxconn’s clients – may take an interesting turn.

Reuters informs us that the most likely fate of the missing prototype product (widely reported to be an iPhone, but in view of the tablet rumours we’re kind of curious if that’s the case) is to have ended up in the hands of counterfeiters. These hi-tech crooks are more than capable of creating counterfeit versions of advanced products, a walk through Hong Kong’s busy markets is all it takes to find a fake iPhone, with prices as low as $63 a pop.

“A typical Chinese factory is protected only by guards who check the IDs of employees entering the facility,” that report adds, pointing out that these days counterfeiters identify those who have access to prototypes and often resort to bribery to get their hands on them.

Open to question then is whether Apple’s plan to launch iPhone in China will see some sales sapped by the existence of counterfeits on the local market.

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