They are spending lots of money on mainstream advertising (ie. TV) which should serve to drive prices up, while others are using more modern, interactive means of advertising (ie.
ONDA with Jay Chou or Meizu with their many public events, contests).
I agree that the prices should at least be 100-200 CNY cheaper. The 4GB S5 retails for 999 CNY, while new 4GB players from retail go for 599-699. I don't think anything the S5 has to offer justifies the extra 300-400 CNY.