I've never purchased a "new from the Apple Store" iPhone in China. But I've purchased a second-hand/refurbished US model iPhone in country off of Taobao. And you can make/receive FaceTime Audio-only calls with it, in-country.
I assumed they were reselling locally in the NYC grey market electronics shops, but why all Chinese? Taking non-crippled phones back home, or making it easier for tourists to get in these shops, makes sense.
* The cheapest is actually iPhone in Japan, but due to hardware enabled sound when taking photos as required by law, there aren't any demand for Japanese iPhone.