Langchao Qilu Software, a Shangdong-based software giant, recently announced that it would invest 85.93 million yuan (US$10.53 million) to buy 46 per cent of shares of Langchao LG, a joint-venture mobile phone vendor.

The software company said the move will make use of both their advantages to form a powerful mobile handset vendor.

A month earlier, China's personal computer giant Legend paid 90 million yuan (US$10.87 million) for a 60 per cent stake in a mobile phone joint venture with Xoceco, a Xiamen-based handset maker.

Legend President Yang Yuanqing said he believed China's mobile handset market, already the world's largest, would continue to grow and its potential was huge.

More merger and acquisition cases among mobile phone vendors will follow, said Shi Jixing, chairman of Eastcom, a Hangzhou-based handset maker.

More than 30 mobile phone manufacturers are vying for market shares in the country which is far too high a number, said an official with the Electronic and IT Products Department of the Ministry of Information Industry (MII).

The official, who declined to be named, said more merger and acquisition cases will happen in the near future.

"Too many small vendors mean domestic products will not have the ability to compete with leading international brands," he said.

Motorola, Nokia, Ericsson and Siemens occupy about 80 per cent of the local market with domestic brands controlling just 15 per cent.

Mergers and acquisitions will help create several big and powerful companies, he said.

The MII will also give its support to the formation of big companies, said Minister Wu Jichuan in his annual working report.

Mergers and acquisitions will not only happen among domestic companies, but the joint ventures will also face the same situation, said the unnamed MII official.

Electronics giant Philips, which is a relatively small brand in the handset market, last year withdrew from independently manufacturing mobile phones.

Philips transferred its manufacturing capacity to a Chinese partner, China Electronic Corp (CEC).

CEC also acquired part of Philips' research and development resources and designs for mobile phones.

The move followed that of telecom giant Ericsson, which quit independently manufacturing mobile handsets earlier last year.

Ericsson joined hands with Sony to co-operatively produce mobile phones under the brand name Sony Ericsson after suffering consecutive losses in the sector.

With competition becoming fiercer, more and more small players will quit the handset market with only several big names left, the MII official said.

He said more small and medium companies are filing for bankruptcy, showing restructuring in the handset market has already started.

(China Daily May 8, 2002)