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Following the digital trend in the West and with internet connectivity set to become ubiquitous via 3G launches by all the three major mobile operators in the near term, a number of domestic companies are jumping on the e-reader bandwagon, that has been rocking this year with Amazon's (AMZN) Kindle. This could be an astute move, as the Chinese market has the potential to become the largest market for the devices globally.

China Mobile (CHU) has inked deals with two companies on this, Jinke Electronics and Hanvon Corp, better known as Hanwang. Both devices are updates of existing models, with TD-SCMDA chips added to provide tha all important wireless connectivity, that has seen the Kindle gain so much traction in the US and Europe.

It would seem that Hanwang is making big bets on the China Mobile deal, as it is expected that the operator will subsidise the e-reader via a 1 or 2 year subscription. Last year, the Beijing based company sold 200,000 units and has stated that this year it is on track to shift 500,000 devices at a retail price of $430. Expectations are that Hanwang will be able to sell 2 million devices in 2010 and are targeting 5 million devices sold in 2011, which would give this company a market share larger than the current US e-book market.

Meanwhile Jinke is also looking further afield, having already reached a deal with France Telecom to distribute its Hanlin reader in Europe via Orange MNC business units and is looking to target BRIC partner countries, Brazil, Russia and India in the near future.

Analysts seem to be of the view that China Mobile will be the lead supply for domestic content, via its app store platform, Mobile Market, as neither company has a large selection of content to offer and the mobile operators can own the end-to-end process; device, subscription, content and billing. E-readers will add to a list of other products including mobile phones and laptops embedded with 3G chips as the carrier looks to expand its nascent 3G subscriber base.

Analysts are very bullish on the e-reader market in China, predicting that the country could account for up to 20% of global sales in 2010. Last December, the government announced that it was looking into distributing 165 million e-readers to students in place of text books (although a look around Google (GOOG), can find no further evidence of this coming to fruition). Amazon and Sony (SNE) have not been able to successfully penetrate China on this technology, so far, as neither Kindle or Sony Reader have supported Chinese text, although that looks to be changing.

This is a potentially huge market and it will be interesting to note how this will play out, obviously China Mobile will be a winner with these products and also with a new colour e-reader scheduled to be released next year by Datang. It has a jump on both of its competitors, as China Telecom (CHA) is new to the mobile market and is apparently struggling with the content side of its business, while Unicom has recently signed the Apple (AAPL) deal. The expectation is that China Unicom will be the Chinese distribution of any such product that Apple brings to market, as the media giant presently lacks TD-SCDMA technology, which prevents it from utilising the China Mobile 3G network.

I can imagine that Amazon will be making stringent efforts to update the Kindle to support Chinese text and relaunch its product; however, the major challenge in China, as in almost anything that is software driven, will be piracy. Quick research finds a number of tech portals commenting on this, with copies of Western books widely available on the Chinese market before Western e-reader devotees can get their hands on them.

Disclosure: Author holds long positions in CHL and CHA.

Source: China Mobile Should Have a Head Start in E-Reader Race