Only Facetime Audio calls are disabled. Normal Facetime calls with video work fine with mainland china purchased iphones....so you have to call people using those phones with video even if you just want to talk to them and not see them. It's kind of silly because it's really unclear what actual problem this solves for anyone including the government. Perhaps the goal is to just make enough friction so that no one really uses it.

IIRC it's something to do with needing a license for audio-only telecommunications services. But I also might be entirely wrong about that.

Pretty sure that is related to competition with China Telecom. When I was working in China, it was the same: voice only calls had to be made via our phone and charged according to China telecom rates, while video calls could be made for free.