With Google CEO Eric Schmidt stepping down from the Apple board this week, reports suggest new levels of competition between the two formerly friendly firms.

This may be true, and the battlefield between the two past partners could come down to a smartphone war in the world’s growing superpower, China. There, Apple’s soon-to-ship iPhone is likely to do battle with Android-driven devices from numerous manufacturers.

Don’t just take that from us – the world’s leading business market titles are all looking at the future tousle between the two, seeing this battle as one that one of the firms must win to secure dominance of the high-end smartphone market in China.

China Mobile – the world’s largest mobile carrier – plans to launch a range of Android-powered smartphones, perhaps as early as next week. And these will compete directly with Apple’s iPhone in a market nowhere near as saturated by Apple’s masterly grip on the news agenda.

China Mobile could launch a third-generation (3G) smart-phone called the OPhone, made by Lenovo Mobile, it will also introduce the Magic range of smartphones made by Taiwan’s HTC.

Apple’s response may be delayed – China Unicom, Apple’s purported iPhone China launch partner – isn’t expected to introduce the iPhone until September or October, when it launches its own 3G service in the country.

China Unicom last week denied reports that it had sealed a deal with Apple, but said there had been progress in the talks. A senior team of Apple executives is known to be in China now for talks with the carrier.

There’s a lot to play for in this territory. China is the world’s largest mobile phone market with 700 million subscribers, with smartphones accounting for 10 per cent of all handsets sold.

The Chinese market is extremely diverse, according to Citigroup analyst, Michael Meng, who notes that much of the business currently comes from middle-aged businessmen who don’t use a lot of data but talk incessantly into their mobiles, night and day.

With the Russian experience – where demand for the iPhone has failed to meet supply – smarting in Apple execs minds, Meng also offers a warning, “The average revenue per user [per month] in the Chinese mobile market is Rmb60, and for China Mobile’s customers it’s Rmb85. For the iPhone, the target is Rmb300. That’s a big gap,” he says. “So the potential subscribers we’re looking at need to be young, wealthy, well-educated, probably English-speaking, since the iPhone still has some English-language applications.”

It’s certainly an unusual situation that Google will effectively now be competing with Apple in perhaps one of the world’s key emerging smartphone markets. Particularly in view of comments from Schmidt last week – before his resignation – when he said, "I’ll talk to the Apple people – at the moment, there’s no issue."

While on the board, he once said, “From my perspective, I don’t think Google sees Apple as a primary competitor.” Despite which the Google CEO would recuse himself from discussions related to the iPhone.

“Eric has been an excellent Board member for Apple, investing his valuable time, talent, passion and wisdom to help make Apple successful,” said Steve Jobs, Apple’s CEO, announcing Schmidt’s withdrawal.

“Unfortunately, as Google enters more of Apple’s core businesses, with Android and now Chrome OS, Eric’s effectiveness as an Apple Board member will be significantly diminished, since he will have to recuse himself from even larger portions of our meetings due to potential conflicts of interest. Therefore, we have mutually decided that now is the right time for Eric to resign his position on Apple’s Board.”

The Apple/Google relationship has now become a Chinese puzzle.

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