Enlarge Image Aloysius Low/CNET

Xiaomi phones continue to be a hit in China, but fierce competition in the country threatens to eat away at the company's market share.

The growing Chinese electronics brand was neck and neck with Huawei in 2015's third quarter, with conflicting reports on which company was China's top smartphone vendor. IHS Technology research provided to CNET showed Xiaomi scored a win with 16.4 percent share against fellow Chinese giant Huawei's 16.2 percent, while research firm Canalys placed Huawei as number one and Xiaomi second.

The Chinese market is tremendously important. Based largely on their sales in the People's Republic, Xiaomi and Huawei presently stand as the world's third and fifth biggest smartphone makers by marketshare respectively, says Counterpoint Research.

Although Xiaomi only began selling phones in 2011, it's quickly become one of the world's most noteworthy brands, receiving a $45 billion valuation last year. A combination of cheap prices, solid specs, and an almost-exclusively online distribution method have helped its Android phones stand out in an already crowded market.

But it's not just consumers who have taken notice of Xiaomi's success, as many of its rivals have been using similar strategies. Vendors such as Meizu and LeTV -- which consumers outside of China may not yet have heard of -- are coming out with price competitive phones and successfully selling them throughout the country online, said Kevin Wang, an IHS Technology analyst, on Wednesday.

In response to the marketshare report, Xiaomi said that its results were weaker than usual due to its product lineup going through a "transition period" during the third quarter. Additionally, in August and September, it released two new phones, the Redmi Note 2 and the Mi 4c, but had trouble sufficiently ramping up supply to meet the demand, the company added.

As for its rival Huawei, the company's smartphone sales have been growing on better company branding and marketing, Wang said. "A lot of consumers think their phones are high quality," he said. "They have good processors inside and contain attractive features." Canalys analyst TZ Wong echoed this, saying that Huawei has been attracting Chinese consumers who want to upgrade to phones with premium features.

In recent years, Huawei has been shifting to selling high-end phones, including its Mate 7 device and the Nexus 6P , which it collaborated with Google to produce.



However, while the company's flagship products have helped promote its brand as high-quality phone maker, its high prices may limit Huawei's appeal in China. "If their phones become too expensive, then this will affect their marketshare," Wang said.

During the third quarter, Apple was in third place, with a 12.1 percent share. Earlier this week, the U.S. company also reported its financial quarterly earnings and said its sales in China doubled from a year ago on iPhone demand.