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Good news has been reported from China's handset production sector as the latest statistics indicate that Chinese brand mobile phones successfully claimed half of the domestic market share in the first half of the year.

However, experts warned that the figure could be interpreted as an omen for impending trouble, since in fact nearly half of the domestic brands were actually imported whole or domestically assembled with major imported components, simply known as "labeled handsets" which refer to the last procedure of label attachment done in China.

Equally discouraging was another fact that about 20 million domestic brand handsets, or almost the domestic sales volume in four months, have been maintained in the hands of either producers or distributors after failing to enter the market.

"Measures should be taken to gradually lower the high imports of handsets, for the importing is incompatible with China's strong manufacturing force with 37 mobile phone manufacturers," said Wang Bingke, director of the economic operation department of the Ministry of Information Industry (MII).

China imported 17 million handsets last year, and 25 million in the first half of 2003. And most of the CDMA handsets had been fully assembled before being imported. In sharp contrast, of the total 55 million handsets exported last year, just 500,000 were home brands.

The MII had stepped up its efforts to tighten control over inappropriate handset imports and to lift the homemade ratio, Wang said.

Late last month, the ministry called in executives of domestic handset manufacturers for a meeting and informed them of the new policy, including measures to limit import quotas and exercising stricter network entry control.

Wan Mingjian, general manager of the TCL Mobile, one of China's leading handset producers, said he would raise "both his hands" to welcome the new policy in the belief that the increasing number of "labeled handsets" had seriously disturbed the market order and posed unfair competition against similar products that were domestically developed.

"By putting a limit on import quotas, the interests of virtually homemade mobile brands will be safeguarded," said Wan.

Wan was echoed by Deng Weiming, general manager of the Panda Telecom Group, whose Panda handset has turned out to be the fastest growing mobile phone brand. By late June, the group had successfully accomplished its annual sales target of 1.5 million.

"The 50 percent market share has exaggerated the real development level of the domestic mobile industry," said Deng, pointing out the introduction of "labeled handsets" has actually propped up production cost and diverted large profits back to foreign companies.

"Limiting handset imports will help encourage independent research and development, which is a crucial criteria to evaluate a country's real development of the mobile phone industry," said Deng, who believes China is still largely subject to foreign countries in terms of core mobile technologies.

China is the world's largest and fastest growing mobile phone market. According to an estimate made by the MII, mobile phone users will increase by 52 million this year, lifting the popularization rate to over 20 percent.

China now has nearly 30 domestic brands of handsets. Ever since the initial entry into the domestic market in 1998, they have been muscling in on famous foreign brands like Motorola, Nokia and Ericsson.

By 2002, domestic brands accounted for 30 percent of the country's entire mobile phone market share. Figures from the MII show that the percentage goes up to 55 percent in the first half of this year.

Experts warned that due to large numbers of "labeled handsets" and fierce commercial and price wars resulting from relentless competition among manufactures, the mobile phone industry faces a big challenge.

With the implementation of the new policy, experts predicted market reorganization would be unavoidable at the end of this year or early next year, warning that some weak and small manufacturers would be eliminated.

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