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Chinese cellphone producers saw their domestic market share shrink in the first five months of this year to 33.8 percent, down two percentage points from the end of 2006.

The Ministry of Information Industry (MII) reported on Tuesday that the lack of crucial technology was the major reason, which stopped domestic producers from cutting producing cost as they had to pay high patent fees.

Their low-price strategy failed to work in competing with foreign rivals, said the MII in a report.

Currently, domestic brands are priced only five to seven percent lower than similar foreign ones, making it hard to attract customers with a price advantage.

In addition, international cellphone manufacturers have promoted more low-price phones since the end of last year. Among nearly 900 types of phones debuted in the first five months, only 36 percent were produced by domestic players.

China had 34 cellphone producers that produce their own brand cellphones by May. Among them, only five sold more than two million cellphones from January to May while 18 sold less than 500,000.