A group of 18 Chinese companies and universities have started work on a desktop operating system that will have similar functionality to Microsoft's Windows 98.
Some experts believe that the code for such a system could be pulled together from open source software already available for free.
A report in the Chinese newspaper People's Daily claims that an early version of the operating system, called Yangfan 1.0, is already in use in some government offices in China, and that the final version should be ready within a year.
Developers are apparently eager to chip away at Microsoft's domination in China by building an alternative standard operating system.
"The monopoly of foreign office software over the Chinese market will be broken," the report stated. The Chinese development project was made public at the IT Industry Promotion Centre in Beijing.
There is already a commercial version of the Linux operating system, designed for the Chinese market, called Red Flag Linux.
Last year, the Beijing government rejected a Microsoft bid and awarded a contract for 2,000 desktops to a local Linux developer.
According to the Asia-Pacific arm of market research firm Gartner, 15 per cent of companies in the region, excluding Japan, used Linux in the fourth quarter of 2001, an increase of five to seven per cent over the previous year.
Still, Gartner found that Microsoft's Windows NT and 2000 server operating systems were the "most widely" used among Asian companies in the fourth quarter.
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