Even with white labeled products so they stay legally compliant, is it really justifiable to increase the risk? They're having people flying in and out for "sales meetings", shared office spaces, devices, maybe even staff overlap.
I understand it's a good way to make money but it comes with some tail risk.
Basically, a Chinese MSSP or SI is selected and given the American/Israeli company's logo and makes a revenue share agreement, and an airgapped environment using a distinct fork is deployed.
That said, most companies decide not to operate in the Chinese market - the TAM is too small for the headaches that it entails (losing Gov and NATO+ defense procurement opportunities).