I'm wondering how those companies on taobao ship used LiOn batteries...like the ones in used laptops, iPads, etc.

Small utility knives are generally allowed on trains and the subway - but not airplanes. You should check with the PSB.

As for the inconsistent enforcement - lack of training (or more probably - lack of learning).

I'm actually a bit shocked at the responses to this post - encouraging "lying" and deception of the laws of China. The cavalier attitude and disrespect of certain elements of this expat community to the laws of China is astonishing.

SHORT ANSWER
Don't do it. This is China, NOT the USA. Criminal penalties here are more severe than the standard US practice of catch and release.

Also - generally speaking - the police won't understand as generally when you're charged with a crime in Asia - it's usually a foregone conclusion that you're actually guilty and the trial is more of a sentencing and punishment venue.

Congrats on dodging that bullet. If you've NEVER done business in China - you absolutely need a 3rd party proxy partner to help with due diligence. ANY of the law firms on this site can help you execute due diligence for a nominal fee (usually around CNY 5k ~ USD/EUR 700.

If your firm cannot afford the due diligence fee - you absolutely cannot afford to do business here.

Also - be aware - as a foreigner, most local firms triple or more their basic rates - so that CNY 5k due diligence fee - you should expect a price-gouging attorney to initially solicit CNY 15k or even more. Blacklist those kinds of firms.