China didn’t make the cut for inclusion on Apple’s latest list of countries to receive the iPhone 3G, and now reports are surfacing that explain some of the details behind the holdup.

Apparently, China Mobile, the world’s largest mobile operator with 415 million customers, is close to making a deal with Apple.

The catch? China Mobile doesn’t plan to build its 3G network using the W-CDMA standard, but competitor China Telecom does.

The mobile giant fears subscribers will be tempted to unlock their iPhones and make way for China Telecom’s network, a legitimate concern given 400,000 unlocked iPhones are already active and operating in China.

As a solution, a report from the South China Morning Post suggests that China Mobile has asked Apple to remove or disable the phone’s WiFi and 3G chips.

Will Jobs & Co. be lured into ‘dumbing’ down their hi-tech device for the sake of tapping into the world’s largest mobile subscriber base? Stay tuned…

[Via cnet]