Chinese officials have cracked down on an organized crime ring, according to reports, who were making and selling fake iPhone 4s.

Police in Shanghai arrested five people over the matter, with the Shanghai Daily reporting that they were using parts procured from Guangdong in Southern Chine, and that the handsets were being manufactured in rented apartments inside Shanghai.

Perhaps the most interesting fact to note is the claim that these fakes iPhones actually included some original parts, presumable bought or stolen from one of Apple’s manufacturing partners. It wouldn’t be the first time official parts had been used by someone other than Apple. One enterprising youngster sold white iPhone parts until the Cupertino outfit got wind of his operation – the budding businessman claimed the parts came from one of Apple’s partners.

According to investigators in China, the fake iPhones were almost indistinguishable from their legitimate counterparts, and that the only noticeable difference in use was the shorter battery life of the counterfeit handsets.

"It’s really hard for customers to distinguish the fake ones from the genuine ones," an officer was quoted as saying.

Reuters suggests that the fake iPhones cost around 2,000 Yuan, or $313 to make, and that they were being sold to unsuspecting punters for around 4,000 Yuan. That’s only a few hundred Yuan less than a real, Apple manufactured iPhone would have cost.

Reuters have been unable to get official comment from Apple, with the company choosing to leave the matter to the police.

Fake iPhones are nothing new, especially in China, but until now they have either been poor knockoffs, or simply loosely based on the iconic iPhone shape and design. The move to using official parts obviously makes detection much more difficult, and improves the value of the finished product.

Apple has had other problems recently with fake items, including entire fake Apple Stores. As with anything highly desirable, there will always be a market for fake iPhones, iPads and iPods, and the authorities may never win the ongoing game of cat and mouse with those willing to risk making a business out of fake products.

Funny that we don’t see many fake Window Phone 7 handsets though, isn’t it?

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