So much time spent working out how to design, construct, and replicate just close enough to make the sale...
I doubt there was little if any NRE (Non-Reoccurring Engineering) costs involved in the construction of these iPhonies. The price alone strongly suggests the most likely explanation is that the Chinese manufactures making the genuine iPhone, are running their production lines on the side, without Apple's consent.
Apple has handed them the specifications and all the manufacturer has to do is build a few thousand more than what Apple orders. The bootleg manufacturers don't even have to pay for things like molds or automation setup costs. They then fill in any missing pieces (such as software or mute slider switches) with the cheapest thing they can get.
You probably would be surprised at how often this happens with consumer goods built in China.