Smartphones priced under the $200 benchmark will comprise 40% of the Chinese market by 2015, compared with approximately 25% in 2012, research firm Canalys said in a report.

This trend should benefit domestic brands, which are playing an "increasingly important role" at the lower end of the price spectrum.

Lenovo, for example, is offering its A65 handset for around RMB700 ($110), whereas similar such models cost $158 at the close of 2011.

"Price erosion is accelerating," said Nicole Peng, the China research director at Canalys. "We are also seeing more domestic Chinese brands entering the smartphone arena, they represent a growing competition to international vendors."

"Established mobile phone makers, like Yulong, Gionee and K-Touch, have the upper hand with strong operator relationships and channels. Emerging vendors, like Xiaomi and Green Orange, are also building reputations quickly in the youth market.”

Canalys predicts that Huawei and ZTE, two companies that have threatened to challenge the big guys’ leading positions in the high-end global market, will not even manage to conquer China’s high-end niche.

“Huawei and ZTE are diversifying beyond the entry level by launching a number of high-profile, flagship smartphones, but it will require significant marketing and brand investment to deliver a significant return and this will take a long time”, the report said.

Mobile operators and local internet companies have moved to accelerate the growth of low-cost smartphones in China. Alibaba and Baidu both have plans to launch smartphones for under 1,000 yuan ($157).

China Unicom, the second largest Chinese carrier, has upped its technical requirements for affordable phones and will most likely continue to do so over the next couple of years.

"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.

DigiTimes cited industry sources as saying there are currently 100 firms competing in China’s smartphone market.