Given the Chinese market's fondness for bundling applications with handset sales, an increase in the on board storage could be seen as a carrier request to ensure there is plenty storage space built in to the device, even though the Lumia 820 is compatible with MicroSD cards for increased storage. Moreover, the extra spec bumps will also make for a better comparison with competing devices.
We've started to review the Nokia Lumia 820, and found it to be much more than a 'cut down' version of the current flagship:
...We would also highlight the differences in overall design (removable battery, customisable shells, weight), screen technology (AMOLED), and storage (microSD)... But the critical point is there are a number of hardware factors that serve as reasons why someone might justifiably choose the Lumia 820 over the Lumia 920. It's not just about the cost. For example, we think, because of the hardware mix, that many of Nokia's more traditional users, especially those coming from a Symbian device, will prefer the Lumia 820.
The screen upgrade and increased internal memory would only narrow the differences between the two high end devices. The key differences would then become the design and camera factors. When we have more details on the Chinese variant of the Lumia 820, we'll let you know!