BEIJING - A new smartphone made by a Chinese high-profile Internet startup has the potential to shake the world's largest mobile phone market driving prices down for high-performance handsets.

The low-cost but high-specification phone was unveiled by Lei Jun, founder of Xiaomi Technology Co that produced it, at a presentation in Beijing on Aug 16.

Xiaomi Phone, which runs a MIUI ROM on top of Android, is 125mm x 63mm x 11.9mm in size and weighs 149 grams -- so it's both a little heavier and bigger than the iPhone 4.

Lei said that his phone stands out with its fast dual core processor, big screen, high-quality signal, and large battery capacity.

But most impressively perhaps is its 1,999-yuan ($313) price tag, 3,000 yuan cheaper than the iPhone 4.

"The success of Apple encourages others to follow suit. It has become a trend to promote platforms with terminals and promote App stores with platforms. The question is whether somebody else can be the winner after Apple," said Sun Taoran, the founder of e-payment service company Lakala.

Lei, also board chairman of Chinese software company Kingsoft, has dismissed comparisons by Internet users between him and Apple's just-retired CEO Steve Jobs, saying on his microblog that he didn't imitate Jobs in clothing and "Jobs' charm is matchless."

But he did compare his phone with the iPhone several times during the product's launch.

A total of 16.81 million smart phones were sold in the Chinese market in the second quarter of the year, up 7.5 percent from the previous three months, according to the IT consulting firm Analysys International.

Analysys has said that the number of smartphones sold in China could reach 95 million for this year.

Phones produced by Taiwan-based company HTC, Lenovo's LePhone and the iPhone are among the best sellers in China.

Lenovo claimed recently in a report that it sold 34 percent more cellphones in the first quarter year-on-year. Its 2,900-yuan LePhone has been selling well, and, according to recent reports, through its sales the company holds a 10 percent share of the middle and high-end domestic smartphone market.

Also, Lenovo this month unveiled its second smartphone, the A60, which has a 88.9-mm touch screen and uses the Android 2.3 operating system, priced at 959 yuan.

But the real change in China's smartphone market is that domestic Internet firms are starting to compete in it.

Last month Alibaba.com, a major Business-to-Business electronic commerce company, released its smart phone which runs "ALI cloud" OS.

Also, China's online search giant Baidu is planning to launch its own mobile phone OS Qiushi.

And the country's leading web-portal Tencent is also working on its own brand Qphone mobile phone and operating system, according to Beijing-based International Herald Leader newspaper.

"The companies including Alibaba, Tencent and Baidu have successfully produced PCs. However, as people are spending more and more time on mobile terminals, their influence could decline," said Li Yi, secretary general of the China Mobile Internet Industry Alliance.

Competition in the smartphone market may get fiercer as international competitors look to grab a bigger slice both in China and worldwide.

Google Inc has agreed to buy Motorola Mobility Holdings Inc for about $12.5 billion, the largest purchase for the Internet search giant that will allow it to compete more directly with other mobile phone makers.

By the end of the first quarter this year, Nokia, Apple and RIM, the leading three smart phone producers enjoyed more than a half stake in the global market. And it is estimated that more than 100 million smartphones were sold worldwide in the first quarter this year.

But, so far, Chinese companies have only captured a small piece of the global market.

Zhu Junmin, a Beijing-based telecom expert, said domestic companies' smartphones are still lagging behind in terms of designing. "Foreign brands do better in industrial and user-oriented designing. Lack of innovation makes domestic companies to have to follow and imitate."

Ma Zihui, chief economist of Samsung Economic Research Center also expressed his worries about the lack of novelty of domestic companies. "Without creativity, a company can hardly compete with foreign counterparts and make ideal profits."