I am more interested with the long term economic implications of one massive market producing goods they copied than the moral aspects. Quite frankly I think there's very few people/countries if any who can claim they have the high moral ground here (or anywhere really).
Economically, I think it is irrelevant what x or y would do when you're talking of tapping a market virtually bigger than everything else put together. I think this is what most fearmongering comes from. Personally I am not afraid of any invasion of cheap copies of this or that because I have noticed no great manufacturer has gone under just because someone copies their product and sells it at low prices. Tamiya (or anyone else copied) I think has a huge opportunity here and things can then go either way. I hope they realise the position of huge power they're in and decide wisely. Their decision will definitely have long term implications for the future of our beloved hobby and that's where my interest comes in. Some people here have expressed the opinion that licensing Tamiya products to China or moving production there will damage quality standards, some people believe that it can bring prices down without any loss in quality. This is the interesting part of the discussion as far as I am concerned.
On the side topic of prototypes I think that's even harder to consider in black and white. Prototypes are by their very nature things someone cobbled together for whatever reason. I for instance mix and match parts in my cars as I see fit (and there's plenty of people doing it around here as one can see by just flipping through the various topics) to achieve my desired outcomes, effectively creating unique cars that can be easily considered prototypes for all intents and purposes. I doubt however anyone in their right mind (much less any authority) could fault anyone for that.