CUPERTINO, Calif. (

TheStreet

) --

Apple

(AAPL) - Get Report

partner

China Unicom

, which has the exclusive deal to sell the

iPhone

in China, will start selling its own smartphone later this year, according to a published media report.

Bloomberg reports

that China Unicom will launch the UPhone, underlining the challenges Apple faces in the increasingly competitive Chinese phone market.

Despite the

iPhone's phenomenal success in the U.S.

market, Apple is up against a host of heavyweights in China, which includes smartphones from

Lenovo Group

and

China Mobile

, as well as Taiwanese giant

HTC

.

Zhang Zhijiang, head of China Unicom's technology department, told

Bloomberg

that the phone will use a "totally new" Linux-based operating system and is being developed by

Okwap

,

Huawei Technologies

and

ZTE

. The company has been selling Apple's iPhones

since late last year.

China is seen as a key front in Apple's ongoing smartphone war with the likes of

Google

(GOOG) - Get Report

and

Research In Motion

(RIMM)

.

Apple has so far struck a positive tone about its Chinese business. During the consumer giant's recent fourth-quarter conference call, Peter Oppenheimer, Apple's CFO, said that the company is "very pleased" with customers' response to the iPhone 4 in China. Oppenheimer also noted that the firm's four Chinese retail stores are seeing the most customer traffic of any Apple stores.

Bloomberg

, however, reports that China Unicom is struggling to capitalize on its exclusive iPhone deal, with the company reporting four straight quarters of profit drops.

As the world's most populous nation, China presents a great opportunity for smartphone makers such as Apple and HTC, particularly at a time when the country is undergoing rapid economic growth.

China was the world's second-largest smartphone market during the second quarter of 2010, according to research from

Canalys

. Some 6.9 million smartphones were sold in China during the quarter, and the number is expected to explode during the coming years.

China Unicom has not yet responded to

TheStreet's

request for comment on this story.

--Written by James Rogers in New York.

>To follow the writer on Twitter, go to

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