Japanese electronics maker NEC Corp. said on Wednesday it was suspending its development of traditional 2.5G handsets in China to focus on developing third-generation (3G) handsets.

"We won't be withdrawing from the China mobile market, but we will be focusing more on the next generation business and the so-called "beyond 3G" -- we have to reorganise the business," NEC spokeswoman Akiko Shikimori told Reuters by phone from Tokyo.

"We will be suspending the development of new products for 2.5G ... we have to reorganise the current operations," she added.

NEC, Japan's third-largest electronics conglomerate, has expanded its sales network in China in recent years as well as its lineup of mobile phones from high-end handsets to include mid-range models.

China -- the world's largest telecoms market with more than 420 million mobile and 360 million fixed-line users -- is currently testing a home-grown wireless standard, TD-SCDMA, whose launch has been delayed several times.

Industry watchers have been betting for some three years that China would soon give the green light for third-generation mobile networks, unleashing more than $10 billion in spending on new equipment, handsets and the like.

China's fiercely-competitive handset market is dominated by Nokia and Motorola , who control about half the market following an aggressive campaign to take back market share from local firms like Ningbo Bird and TCL Communication , which had made major gains but have struggled to keep up.

The mobile handset market, globally and in China, is proving tough for smaller players.

Philips Electronics said last month it was quitting the mobile phone business entirely, selling its remaining activities to China Electronics Corporation (CEC) after amassing hundreds of millions of euros of losses.

TCL Communication Technology Holdings Ltd., which acquired the troubled handset business of French telecoms equipment maker Alcatel , is also losing money.

The global top five, Nokia, Motorola, Samsung , Sony Ericsson and LG Electronics , are taking more market share every quarter. They had around 80 percent of the market in the second quarter, according to market research group Strategy Analytics.

BenQ Corp. the world's sixth-largest mobile phone vendor, said on Tuesday it plans to cut half of its workforce in Shanghai amid restructuring woes after its German handset unit filed for insolvency.

NEC shares fell 5.6 percent on Wednesday, lagging a 1 percent rise in the benchmark.