Google's biggest search rival in China - homegrown market leader Baidu, is to develop a Linux-based smartphone to rival the Californian search giant's Android-based devices.
Chinese state-run news agency Xinhua today reported a deal between Baidu and developers Tencent and TekMobile to create an "Android-like operating system". Tencent is the company behind Asia's most popular instant messaging software, QQ.
According to reports in the Chinese media, the move is being led by former Google employees who were poached by Baidu after Google ended the self-censorship of its search results. Baidu has wooed Google China's former vice-president of engineering, and the technical director of the Google academy of engineering, to head the project.
Baidu CEO Robin Li has long harboured ambitions of getting a foothold the mobile market. Li revealed plans to launch a Linux-based mobile OS in an interview with the Wall Street Journal last year.
Blogging sites in China have suggested that the only way the deal could succeed is with state investment aimed at knocking Google's Android out of the market.
Google's recent wrangles with China's Government over censorship have seen it falling further behind in the Chinese search market. Its market share has dropped from 32.8 per cent at the end of last year, and currently stands at 27.8 per cent.
Now the company will have to fight for its mobile OS business - and the rewards for the winner of the contest will be huge.
According to a Government statement yesterday, China's mobile phone market reached 800 million users by the end of June this year. The country is set to invest more than $17 billion in its 3G infrastructure this year.