The ring was busted last week in a joint raid carried out by police from Shaanxi and Sichuan provinces, state-run Xinhua news agency reported, citing police.
They also seized more than 200 pieces of equipment, including computer and telephone sets, 200 mobile phones, and over 1,000 fake prepaid phone cards.
An investigation showed that the suspects hired telephone operators in Chengdu City, Sichuan and Pucheng County, Shaanxi starting in November 2014.
With the help of phone number changing software, they pretended to be staff of a Chengdu-based mobile phone service centre and sold fake and poor quality mobile phones to people in both provinces.
Telecom-based fraud, in which suspects cheat people through telecommunication channels, is a growing crime in China.
Chinese police have cracked 16,708 telecom fraud cases, apprehended 5,825 suspects and busted 927 gangs since a campaign targeting new types of telecom crime was launched on October 30, the Xinhua said.