I wouldn't develop the prototype in China for the very reason that you are worried about IP protection.
Producing products has it's benifits but it isn't always the best option, especially for product development.
I would develop the prototype here in the U.S. While protecting myself with a simple NDA.
Here's a quick article about NDA's and a free NDA template.
Next, I would hire an independent electrical engineer. I know, your probably saying that it's expensive and you're not there, etc. etc.
This will cost less than you think. Hiring an engineer will give you some VERY important things right from the beginning: A BOM (Bill of Material) and DFM (Design for Manufacturing).
A quality engineer will have experience working on projects like yours and will know the components and processes needed to efficiently produce your product. With a BOM you will know EXACTLY what materials and components your project will need and easily know how much they will cost in different quantities. Note: most of these components are produced in China so connecting the dots to a Chinese Manufacturer won't be time consuming also your manufacturer will know where to purchase quality components.
With DFM you have an exact roadmap to mass producing your product. You won't have to take the Chinese manufacturers word for it. You will present them with precise guidelines for production when sending an RFQ request for quote.
Many times your engineer will help build or point you in the right direction about building your prototype.
Even if your not ready to hire an engineer, just going through the interview process of hiring one will tell you a WHOLE LOT about your product idea.
Here's step-by-step guide to hiring design engineers and a free downloadable pdf interview template.
I would also take a look at John Teel's blog for more recommendations.
One other thing to think about is certifications for an electronics product. You will have to test the product for electronic interference, etc. at an approved lab and then apply for the FCC or EU certs.
This is a whole lot easier when your engineer knows local, compentent labs and how the process works.
After going through this process you are ready to move into manufacturing. Having all of your ducks in a row before contacting manufacturers will save a TON of time and money.
As you can see there is a lot to think about before thinking about reaching out to overseas suppliers and manufacturers.
I hope this helps.