Two years ago, it looked like China's Xiaomi was on the top of the world as one of China's upstart smartphone leaders. But with tight margins and little differentiation among Android-based phones, cheaper phones have overtaken Xiaomi in China.

Research from Counterpoint's Market Monitor shows the demand for smartphones in China grew 8% annually and 7% sequentially in the third quarter of 2016.

Oppo and Vivo became the number one and two smartphone brands in China capturing 17% and 16% share, respectively. The two brands share the same owners BBK Group, and they now control almost one-third of the China smartphone market, reports Counterpoint.

Shipments for Oppo's smartphones reportedly grew 82% annually whereas Vivo recorded the highest growth in China during the quarter as the demand for its shipments rose 114% annually, more than doubling its volumes.

Oppo's performance was a result of strong demand for its flagship Oppo R9 which became the top selling model in China for the entire quarter surpassing the popular iPhones which held the top spot for many years. Oppo's low-end A59 and A37 models are also driving strong sales in tier-3/4 cities adding to the overall uptick. Vivo also saw healthy demand for its flagship X7 series across offline retail helped by aggressive outdoor promotions

Commenting on the competitive landscape, Counterpoint's Senior Analyst Meng Meng Zhang noted, "The previous market leader Huawei saw a modest growth of 4% but still recorded a stable performance capturing 15% share. Huawei's upcoming flagship Mate series refresh should drive some uptick in premium segment with opportunity to fill in the gap left by Galaxy Note 7 and thus should drive halo effect for the mid-tier Honor and Nova series to maintain its spot in top three rankings. Xiaomi suffered as its shipments were down 22% annually with demand mostly skewed towards low-end models such as Redmi 3s."