If I would I'll have a go at this, and I am probably wrong.
For many years, China businesses were all state owned. When they were opened up to individuals, the government didn't care what was produced, they wanted to lower the trade deficit.
Corruption was (and is to a certain extent) still rampant. So if anyone was reported, a few hands were greased and all was well.
The problem now lies with companies not filing patents in China itself. I don't think they recognize any that aren't registered there (but not quite sure about this) So these companies are exploiting a loophole, filing a patent with the local patent agency-still not fully centralized, and they are legal for sale in China-that's it in a nutshell.
The big problem comes in when these companies start selling them on eBay. Now we have access to them. Others register a company in China and a sister company in HK and sell from here. For these puzzles, we are not part of China. Even I can't buy them legally here-but I can there and bring them back for personal use or as a gift. Check your boxes when you buy a KO. I'll lay odds it is posted from here and marked gift to get past customs.
Now, if you read my last post, the Central Government is attempting to do something about this. They are monitoring state run webpages, and cutting out western web pages. Is too much censorship good? Too little? As Uwe said tonight, we need some, striking the right balance is difficult.
Good lord, what is wrong with me? two slightly political posts in one night! I must be high on fumes
I was on my notebook and realize now that I didn't answer your question. These puzzles that I pay HK$70 for sell for 40yuan on the mainland. 3000 is a minimum run, but you are talking about acountry with billions of people. I would lay odds they sell those 3000 each MONTH to us in the west. the rest is profit. I overheard a conversation a while ago the parties were talking about just how much more money they could make by selling puzzles outside of China. More than enough for most of us to stay happy for a while. The sales on the mainland were just considered extra cash.