I! Love! This! Thread!
I only have two thoughts to provide here:
1. Trusting Chinese partners:
Understand that their first thoughts will be about the usual practical things: Secure market? Solid business plan? Reliable suppliers? Adequate liquidity?
The second round: this is going well. Now, is there a way to cut the foreigners out?
Consider that. Is there a way to ensure that they still need you? Do you have a lock on the end buyer? If so, cool; if not (and err on the side of pessimism), you could well make other people rich... but be cut out with nothing.
2. Local workforce:
New grads have little or more likely NO practical skills. The best skills-to-salary ratio seems to be in the staff who have worked a year or two for either a Chinese, or better yet Taiwanese or Hong Kong Chinese outfit. They have some skills, knowhow and experience, and are likely sick of the bullshit, dreaming of a foreign outfit that will deal squarely and openly with them.
In this case you can bring them on; show them where the company is and where it wants to go; what future they can expect with you in terms of promotions, role and training; and state openly that you don't expect a lifer, just someone who has good reason to stick around for more than a year.
As for training, consider that speaking English with laowai on a regular basis IS training. If the guys you find have crappy English, you can always pay a foreign teacher under the table to give a couple of classes each week. This is significantly cheaper than getting one through a training centre, and you can vet the guy you hire yourself. English is the single most valued yet difficult skill to acquire in China: there just aren't enough hooligans like myself to go around. But you could find one in any one of the local laowai watering holes.
Being a hippie teacher with little business background, I'm mystified by the claim that Chinese factories aren't interested in large orders, or in longterm supply contracts. If you start with small orders, could you build enough trust to gradually ratchet up the size of each order?