2010-08-12 16:01

Xinhua said on Thursday it will develop mobile search technology with China Mobile, the nation's dominant carrier, potentially challenging current mobile search leaders Baidu and Google.

China Mobile shares staged a late day rally after Xinhua reported the tie-up, closing up 2.44 percent in Hong Kong after trading down for most of the day.

Xinhua, China's government-owned official state news agency, said it signed a framework agreement on Thursday with China Mobile, which controls more than two-thirds of the market, to establish a search engine company.

It did not provide additional details.

A China Mobile spokeswoman later confirmed the tie-up but added that it was an agreement between Xinhua and China Mobile's state-run parent.

The move comes as many see mobile search becoming a major growth area, as more smartphones with Internet capability come into the market following China's launch of high-speed 3G mobile services last year.

China's mobile search space is currently led by Baidu with about a third of the market, followed by venture capital-backed Easou with 17 percent and Google with about 12 percent, according to marketing consultant Analysys International.

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Analysts said the new partnership may represent only a slight challenge to independent search providers such as Baidu and Google, since it was not immediately clear whether China Mobile would seek a place in the traditional search space. Even if it did, it would be starting from scratch against the established players.

CLSA analyst Elinor Leung said the new partnership could be focused on more localized search services such as searching content on individual mobile phones, and might not be designed for searching the Web.

"I understand why China Mobile wants to do it themselves," she said. "It doesn't mean they will compete directly with Baidu. ... It's not terribly negative news for Baidu."

Another analyst at a major Western brokerage agreed the news was mildly negative for Baidu and Google, as a new China Mobile partnership with Xinhua would have a lot of catching up to do to develop effective search technology.

"If China Mobile is using their own search engine, that could make it more challenging for Baidu and Google," he said, speaking on condition that his name not be used due to company policy. "I think it's a slight negative for Baidu and Google. It's more like a non-event."