The iPhone 5 is probably lower
cost to make than the iPhone 4s.
It has chip consolidation for the cellular and wireless modems and has a unibody design as opposed to the glass front and back on the iphone 4s.
It probably cost about $150 to make a 64 Gb model.
So there is room for Apple to make a lower cost version and sell it only in China to corner more of that market.
I wouldn't diminish my brand in other parts of the world but India and China are large enough markets to warrant this consideration for a specialty product. That being said, it feels like a compromise. I dont' think Steve Jobs would ever have done it.