If /system partition is never encrypted (even in "full-disk" encryption), how is it protected?

It seems that Android's "full-disk-encrytpion" is only concerned about encrypting the data or internal storage partition. It says:

Full-disk encryption is the process of encoding all user data on an Android device using an encrypted key. Once a device is encrypted, all user-created data is automatically encrypted before committing it to disk and all reads automatically decrypt data before returning it to the calling process.

I am puzzled what encryption (at rest) of user-data is worth, if an attacker can simply modify the content of the /system partition, to contain a malware that would exfiltrate data or encryption key.

Is there a reason to consider Android's encryption to be effective even though /system partition is not encrypted?

I assume that an answer involves a chain-of-trust, relative to a locked boot loader.

Answer

It looks like Google agrees with you and is phasing out "legacy" full disk encryption:

Caution: Support for full-disk encryption is going away. If you're creating a new device, you should use file-based encryption.

Full disk encryption was considered pretty solid until 2016 because of the hardware backed trusted execution environment. Depending on how the OEM implements the trusted execution environment and if the OEM utilizes the android keystore system. Makes a varying degree of security. If instead it is software backed then not so much.

The encryption keys are not just sitting in some un-encrypted partition. The encrypted encryption key is stored in th e crypto metadata. The hardware backed trusted execution environment’s signing capability and if the android keystore system is implemented then the android device as a whole and even the android kernel do not have access to the keymaster within trusted secure enviroment. The keystore system is very intresting but explaining the security and operations behind it involves a multiple page explaination that would be answered best though its own question. 

Android devices that support a lock screen and ship with Android 7.0 or higher have a secondary, isolated environment called a Trusted Execution Environment. This enables further separation from any untrusted code. The capability is typically implemented using secure hardware.

Examples of the way a trusted execution environment can be set up are:

A separate virtual machine, hypervisor, or purpose-built trusted execution environment like ARM TrustZone. The isolated environment must provide complete separation from the Android kernel and user space (non-secure world). This separation is so that nothing running in the non-secure-world can observe or manipulate the results of any computation in the isolated environment.

Android 9.0 introduced a hardware backed trusted execution environment called a strongbox. The strongbox is a completely separate, purpose-built and certified secure CPUs. Examples of StrongBox devices are embedded Secure Elements (eSE) or on-SoC secure processing units.

A hardware backed trusted secure environment that utilizes the android keystore system can serve as strong protection for the encrypted encryption key. Unless a third party such as Qualcomm (2016) happens to mess up with design oversite in the implementation of the keymaster.