Japan's leading handset makers, NEC and Matsushita, are working on a joint venture to cash in on China's future market for third generation mobile phone handsets.

The two firms will launch a joint venture later this year, aiming to popularise 3G cell phones in China and help set a Chinese standard for 3G services, according to reports in the Japanese financial daily Nihon Keizai Shimbun.

The joint venture, capitalized at about 300m yen ($2.4m) will give the two firms a head start in the race to dominate the Chinese market.

China's is the world's largest mobile phone handset market, with 120.6 million users.

But European and US manufacturers now control about 70% of the handset market.

Chinese stake

China plans to launch 3G mobile phones in 2003, offering services that are about 40 times faster than current models and allow users to watch videos and download music.

"Consideration is under way to jointly develop the latest generation of mobile phone technology applied in China," said Akiko Shikimori, a spokeswoman for NEC.

But she denied that the joint venture was likely to take off later this year.

Press reports say the joint venture will start operations with about 100 employees, most of whom will be Chinese engineers.

China Mobile Communications and other Chinese carriers will be asked to take stakes in the joint venture.

Political mistake

Matsushita - which makes Panasonic phones - and NEC are Japan's market leaders and joined forces in August to share the cost of developing 3G handset technology.

They are currently the only suppliers of handsets for the world's first 3G service, launched in Japan in October by NTT DoCoMo.

But Matsushita still faces difficulties in China after installing software that referred to Taiwan as an independent country.

Because of that error, Matsushita lost its right to sell phones there this year, but hopes the issues will be resolved in time for the planned 3G venture.