The world's biggest phone market is getting a lot tougher for Apple and Samsung Electronics.

China Mobile, the biggest carrier, is cutting subsidies by $2 billion in a sign the industry is less willing to pay for expensive devices like the iPhone and Galaxy S. That may accelerate growth for Chinese makers Xiaomi and Lenovo Group that offer similar features for lower prices.

The 38 percent cut comes after government regulators were said to tell China's three carriers to lower marketing expenses, changing a practice that spurred sales of premium handsets to a wealthier population. The order may save the companies $6 billion and further shift the balance of power after Samsung lost the top spot in market share last quarter and Apple failed to crack the top five in sales.

"High-end flagship phones will suffer the most from the regulation due to their prohibitive prices in the China market without subsidies," said Lydia Bi, a Shanghai-based analyst at researcher Canalys. "Samsung and Apple, as the two major high- end flagship phone makers, have the most to lose."

China Mobile investors supported the move, with shares rising to the highest in six years Friday in Hong Kong trading. Lowering subsidies should be positive for profit, The carrier in December agreed to offer the iPhone after six years of negotiations. Cupertino-based Apple said iPhone sales rose 48 percent in the country in the quarter ended June 28.

Yet Apple wasn't among the top five vendors during the second quarter, according to separate research from Canalys and International Data Corp.


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Xiaomi became No. 1 in China by shipping 15 million devices in the second quarter, giving it 14 percent of the market to overt ake Samsung, which had 12 percent, Canalys said. Xiaomi wasn't even among the top five vendors a year earlier.

It was the first time South Korea-based Samsung wasn't No. 1 since the fourth quarter of 2011, according to Canalys.

According to IDC, Lenovo was the top vendor with 12.5 percent of the China market, with Samsung ranking fifth.

"Chinese consumers are starting to be more receptive of the higher-end phones produced by Chinese vendors," said Tay Xiaohan, a Singapore-based analyst with IDC.

China's State-owned Assets Supervision and Administration Commission told the national carriers to cut costs because they overspent on subsidies and advertising for devices such as iPhone, people familiar with the matter said last month.