China has a vibrant gray market with many assembly plants around Shenzhen. iPhones and other smart phones are disassembled (motherboard, other pieces, etc.) by distributors in other parts of the world, (was mainly Middle East distributors but that activity’s moved to all the continents now), then shipped in parts to get around the “electronics duty” as they’re classified as electronic components instead of finished goods. Assemblers put the units together and ship them to retailers in the big cities in China, and sit on shelves next to the real thing, or next to other models of that vendor. It’s very common to see six Motorola models, three legitimately sold in the country, and three not yet announced there but on the shelf thanks to the gray market. It’s a growing industry problem.

I’m not sure why iSuppli thinks the Chinese gray market will level off in 2012, the government is doing nothing about it, it’s hard for vendors to reveal disassemblers and trace the product and parts back to the shelf where it sits as a gray unit in Beijing.

http://www.businessweek.com/globalbiz/content/apr2009/gb2009041_266236.htm