BEIJING: Domestic challenger brands are set to reshape the Chinese smartphone category over the next five years, but their impact should mostly be felt at lower price points, according to a report.

Canalys, the research firm, suggested that China will be responsible for more than a third of smartphone shipment volume growth globally this year, having already become the largest outlet for these devices.

Looking further ahead, the organisation estimated that gadgets priced under the $200 benchmark will take 40% of the Chinese market by 2015, compared with approximately 25% in 2012.

This trend should benefit indigenous brands, which are playing an "increasingly important role" at the lower end of the price spectrum. As an example, Lenovo, the IT group, is offering its A65 handset for around RMB700 ($110), whereas similar such lines cost $158 at the close of 2011.

Mobile operators in the country are also defining higher minimum specifications for procurement, pushing prices down. China Unicom, for example, now demands its RMB1,000 smartphones have four inch screens and a 1GHz processer, both better features than last year without a price increase.

"Price erosion is accelerating," said Nicole Peng, the research director for China at Canalys. "We are also seeing more local brands enter the smartphone arena and they represent a growing force for competition against international vendors."

"Established mobile phone makers, such as Yulong, Gionee and K-Touch, have the advantages of strong operator relationships and channels. In addition, emerging vendors, like Xiaomi and Green Orange, are building a reputation quickly in the youth market."

Domestic "tier one" players including Huawei and ZTE have their own aspirations to enter this space, which may take a "long time" and require "significant marketing and brand investment", said Peng.

Elsewhere, several internet companies are planning to enter the sector, with Alibaba, Baidu, Qihoo 360, NetEase and Shanda Interactive announcing partnerships with manufacturers.

"The involvement of these big players in China will further increase pricing pressure, particularly at the entry level, as they use advertising and service revenues to subsidize smart phones," said Rachel Lashford, Canalys' managing director for APAC and mobile.

When assessing the prospects for operators like Samsung, Apple and HTC, all selling phones worth more than RMB2,500, Canalys predicted they would still deliver two-thirds of value sales by 2016.

Data sourced from Canalys; additional content by Warc staff