The Chinese government is considering policies to limit overproduction in its crowded mobile-phone industry, a step that could drive some domestic manufacturers out of the business and improve the fortunes of foreign makers in the world's largest cellphone market, Thursday's Wall Street Journal reported.

Companies are closely watching for actions by the Ministry of Information Industry after an agency official recently told domestic cellphone makers it might restrict their ability to purchase and relabel phones from overseas companies. The practice, common among China's producers, has contributed to a massive four-month backlog of phones that has forced makers to cut prices and has squeezed profits.

For the 12 multinational companies that make mobile phones in China, some limits would be a welcome change from the ministry's aggressive support of domestic companies that have grabbed nearly half of the China market in the past two years even without much technical innovation of their own.

In the past three years, the ministry has licensed 25 Chinese companies, chiefly producers of other electronics and consumer goods, to sell cellphones. Lacking the technical expertise of foreign companies, many got started by importing phones from other makers, chiefly in Korea and Taiwan.

It is still unclear how advanced the ministry's thinking on restricting such imports is.

It is also unclear how such restrictions would fit with China's broader moves to open trade. But if implemented, restrictions on imported handsets would hurt the Chinese firms that have done little to develop technical skills for mobile- phone manufacturing.

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