The first version will be released next month, and will be named Ubuntu Kylin. This first, initial version will already contain a number of China-specific tweaks, such as Chinese input methods and the Chinese calendar, and search support for the most popular Chinese music services will be built straight into the Dash, Ubuntu's global search thing. Future releases will expand to include integration with Baidu maps, the Taobao shopping service, Chinese payment processors, and local public transport information. The collaboration will move past desktops in the future.
"The release of Ubuntu Kylin brings the Chinese open source community into the global Ubuntu community," according to Mark Shuttleworth, "With Ubuntu Kylin, China now has its own secure and stable desktop operating system, produced alongside Ubuntu's global community. Ubuntu combines proven technology with a mature ecosystem and strong OEM and ISV partners, and this initiative allows the Joint Lab to bring those strengths to China across the full range of platforms: desktop, server, cloud, tablet and phone."
China Software and Integrated Chip Promotions Centre has decided to work with Canonical to produce the "reference architecture for Chinese operating systems". The Chinese government has a preference for home-grown products, and this announcement fits within that preference. This China-tailored version of Ubuntu will be "widely-used" and is part of a five-year plan by the Chinese government to promote open source software.
An immediate concern here is the political and possible ethical implications of working with the Chinese government - especially for an open source project. China still has a totalitarian regime, and internet use in within the country is widely regulated and censored. Virtually every major corporation already operates in China, so while it certainly isn't as big an issue as it used to be, such close cooperation still raises questions.
However, I think it's unlikely we'll see creepy backdoors or monitoring software built into Ubuntu Kylin. First, the open source nature will mean it'd have to be done in binary form, and even that will stand out among the rest of the open source operating system. Aside form that, there's the simple fact that monitoring on the device itself is inefficient compared to monitoring the network itself.
Still, this could be huge for Ubuntu, and thus for Linux.