This is an example of China's "robber economy" in action, they pretty much steal anything they can make money off of, without any respect for the original creators or patent holders. This is high profile, but relatively minor compared to them doing things like producing conterfeit Jeans (with Levis or Calvin Klein labels), medications that took billions to develop, recreation drugs like viagra, copies of movies, etc... The Chinese pretty much take anything they can get, analyze it, duplicate it with cheap labour, and then sell it for a fraction of the price. It's a big part of why a war is going to be inevitable since China is progressing based on the monies from this, but it's also hurting the rest of the world given the increasing scale.
The big question here is whether or not China backed down, since they typically do not. Their usual technique is to go "National sovreingty, your copy right laws don't apply here. nanananana". This leads me to believe that the owners of the Gundam franchise paid them off (which sometimes works), or there was some kind of domestic backlash that we're not hearing about.
I'd also suspect that China might have looked more closely at the franchise retroactively and decided that Gundam doesn't fit with their national philsophy. The politics, and the individual intiative of the scrappy young heroes doesn't much fit with what they promote for society. If they allow something like that as an example, then it opens doors for other kinds of media. Over the years I've read things about the limits they put on freedom of expression through artwork, and how they have put people in jail.
The color scheme strikes me as being an attempt to make it Red as well, given that Red is the color of communism, and also China's national color. It looks like the paint job didn't quite work and came out that orange color, and it's possible that it's been recalled for a better paint job (which would be easier in a warehouse, than trying to climb all over it outside with tourists running around all over the place).
Interesting, but without more details (which China is always reluctant to give) it's hard to do more than guess about what it means. Unless China was paid off somehow, I can't see them backing down due to Japanese nerd rage, that pretty much doesn't happen.