There is “no sign of the sort of sellout reception that greeted the smart phone at its introduction in other countries,” The Wall Street Journal reported, adding that there were no lines for the iPhone at the Apple store in Beijing, the company’s only location in China.

Sounds like a lackluster launch, and with Apple (AAPL) and China Unicom, the only carrier authorized to sell the device in the country, declining to disclose sales figures, it’s difficult to argue that it was otherwise. It clearly wasn’t the rousing success to which we’ve become accustomed. That said, it probably wasn’t quite the bust it’s been made out to be, either.

Why? Well, consider this: There were launch ceremonies in 30 provinces. To date, we’ve heard anecdotal reports from–as best I can tell–one of them. And while it’s admittedly concerning to learn that a China Unicom store in Beijing sold just 10 iPhones last Saturday, that’s just one store. The device was on sale in many, many others (1000, according to Apple COO Tim Cook) across 30 provinces and 285 Chinese cities in a nation with 710 million mobile-phone subscribers.

Finally, while it’s true that the prices Apple and China Unicom are charging for the iPhone are heady, they’re not quite as bad as we’ve been led to believe. “I think the western media has misconstrued the iPhone pricing in China,” Dan Butterfield, editor of iPhonAsia told me.

“Nine out of 10 reports that I’ve seen have simply repeated the ‘too expensive’ mantra,” Butterfield explained. “They then quote the contract free price point–4,999 yuan ($730) to 6,999 yuan ($1,025) for the iPhone 3GS. They argue that you can buy a gray-market iPhone cheaper and it has WiFi….The truth…the gray-market price is marginally cheaper for those who want to go ‘prepaid.’ But when you examine the full matrix of China Unicom price/plans, you quickly realize that you can save big by going on contract vs. prepaid (pay as you go). There are even four price/plans where your iPhone if free. The iPhone subsidy increases for those who opt for more expensive monthly plans.”

Butterfield elaborates: “Moreover, if you want to access ‘3G,’ there is no good carrier option other than China Unicom. You can run at 2G speeds on China Mobile or China Telecom. But neither of these two networks support the chipset in iPhone. China Mobile runs TDSCDMA 3G and China Telecom runs CDMA2000 3G. So you are left with China Unicom’s WCDMA 3G–a world-standard 3G protocol fully supported by iPhone 3G/3GS. Why not go on contract and get a subsidized iPhone that is well below the ‘too expensive’ (contract free) prices that the media is shouting about?”

And in the end, does it even matter? As Butterfield noted, an iPhone sale is an iPhone sale–whether it’s made by a gray-market vendor or an authorized one. And either way, it’s good for Apple.

So was the iPhone’s launch in China really a bust? “Probably not,” said Butterfield. “Was it a rousing success? Probably not. The truth is somewhere in the middle.”

UPDATE: Well what do you know: China Unicom just coughed up some first weekend sales numbers for the iPhone and … well, they’re not much to look. The carrier sold just 5,000.

This morning, a report in Shanghai Securities News claimed the two companies had reached an agreement that grants China Unicom three years of exclusivity. The terms are said to call for the carrier to purchase iPhones from Apple for 3,000 yuan ($439) each and guarantee annual sales of one million to two million units and at least five billion yuan ($732 million) in annual revenue.

At present, there is no revenue-sharing agreement. That had become a sticking point in negotiations and Apple (AAPL) seems to have foregone it in order to finalize the deal.

But has an overall agreement really been reached? As I noted earlier, state-run media claim it has. China Unicom, however, says otherwise.

“We have made progress but there are still some problems to be resolved,” a Unicom spokesperson told AFP. “Both sides have their own timeframe for an agreement but essentially it depends on the practical progress of the negotiations.”

That said, it seems clear that an agreement will be reached. Certainly, China Unicom would be foolish to balk at this point. To win the right to be the sole supplier of the iPhone in the world’s largest mobile market for three years would go a long way toward bolstering Unicom’s weak performance and make it easier for it to compete against rivals China Mobile and China Telecom.

Steve Jobs and I hope the iPhone will enter China as soon as possible. We are discussing this issue but we do not have an agreement.”

– China Mobile CEO Wang Jianzhou

It’s been nearly a year and China Mobile is still in talks with Apple about bringing the iPhone to China, though the revenue-sharing issue that had stalled the two companies was resolved back in July. Now we know why the talks keep dragging on: hardware localization. The South China Morning Post reports that China Mobile has asked Apple (AAPL) for an iPhone with Wi-Fi and 3G technology disabled.

Seems China Mobile is building a 3G network of its own using the Chinese developed TD-SCDMA standard and believes that crippling Chinese iPhones will discourage customers from unlocking the device and using it on rival China Telecom’s W-CDMA network. Though, really, China Mobile should know better. China has a thriving gray market for iPhones. In fact, Market research firm In-Stat reported earlier this year that there were some 400,000 cracked iPhones on China Mobile’s network at the end of 2007–10 percent of all iPhones sold by Apple at the time.

So, will Apple agree to the carrier’s demands and customize a piece of standardized hardware for a single region? And beyond that, could CEO Steve Jobs even bring himself to compromise the iPhone “experience”? With 600 million cellphone users in China, 415 million of them China Mobile subscribers, he just might.