Reform body licenses strong players to help squeeze out backyard operators China's new licensing system for the mobile handset manufacturing sector will encourage design-focused makers who will soon kill off backyard operators exploiting the established brands, industry players say. Such long-overdue consolidation has been fast-forwarded by a new licensing regime imposed recently by the National Development and Reform Commission (NDRC), which has brought stronger players such as Ningbo-based Aux Telecom and computer giant BenQ into a growing market led by major foreign brands. Nine new mobile handset licences have been approved in the past two months, adding to the 49 from 1998 when the government stopped issuing more. These new licences were the first since the NDRC in February issued tougher rules for mobile handset manufacturers. Among other things, the new rules stipulate that applicants need registered capital of at least 200 million yuan and must have comprehensive research and development facilities. The requirements aim to clamp down on the widespread industry malpractice of 'brand-name plastering'. Unlicensed manufacturers churning out low-quality handsets offer licence holders a share of profits for the use of their brand name. Industry sources said the new licensing system might soon wipe out struggling handset makers such as Shenzhen Konka and Nanjing Panda. Konka Group reported recently that its first-quarter mobile handset sales plunged 53 per cent year on year as gross margin fell amid declining retail prices. 'I expect that the original 49 licences, which are being held by 37 mobile handset enterprises, will consolidate in two to three years, putting some [makers] out of business and some merging with bigger domestic and international players,' said Aux Telecom marketing director Li Xiaolong. Aux Telecom was among the nine awarded a licence in March. Mr Li said the company this year aimed to produce five million units of its own-branded mobile handsets that would come in 20 models with colour screens. They will be priced at 800-1,500 yuan, about half the cost of major foreign brands. According to research group Gartner, the top three positions in China's mobile handset market - 68 million units sold last year - were held by Nokia with 19.7 per cent, Motorola with 12.09 per cent, and Samsung with 11.91 per cent. Local brands Ningbo Bird and TCL claimed the fourth and fifth spots, with 8.57 per cent and 7.16 per cent. Gartner analyst Ann Liang said leading Taiwanese mobile makers BenQ and Inventec, which secured mobile handset licences last week, had a good chance of success in China due to their leading technology and strong logistical networks. 'With these new market entrants, I expect two of the existing struggling players to get booted out soon,' said Ms Liang. BenQ is targeting a 10 per cent share of China's mobile market in three years and expects sales of its own-branded phones will top one million this year. The NDRC said China's total annual handset production could exceed 500 million units this year - double last year's output, or about 80 per cent of global demand. The nine new licensees are expected to make 25 million units a year.