After several months of negotiations, it looks like the iPhone is finally coming to China - albeit with some functionality removed. It appears that China Mobile is asking Apple for a version of the device with the Wi-Fi and 3G chips disabled, leaving customers with nothing but a slow 2G data connection.
The reasoning behind this odd petition is that state-owned China Mobile plans to build and push its own 3G network using the Chinese TD-SCDMA format, which is not compatible with the widely used W-CDMA standard. By disabling the 3G functionality, it would make the iPhone less appealing to users that might want to buy it and unlock it to work on the W-CDMA network that rival China Telecom manages.
The feature reduction would allegedly be done by software, but what's to stop hackers from tweaking the crippled iPhones? The other option would be to supply a custom version of the iPhone for China, which seems very unlikely considering Apple provided a standard product to the rest of the world. Then again, with a potential customer base of two billion people, it wouldn't be that surprising if Apple is thinking of making an exception.