BEIJING, Jan 25 (Reuters) - Apple's smartphone shipments in China shrank 2.1% in the final quarter of 2023 from the same year-ago period, hurt by intensifying competition from local rivals led by Huawei, data from research firm IDC showed on Thursday.

The drop underscores the challenges facing the U.S. firm in its third biggest market, as some Chinese companies and government agencies limit employees' use of Apple devices, a measure that mirrors U.S. government restrictions on Chinese apps on security grounds.

Huawei, whose smartphone business was decimated by U.S. sanctions, also made a comeback last year with new launches, intensifying competition in the world's biggest smartphone market that grew just 1.2% in the final quarter of 2023.

Huawei's shipments increased 36.2% in the last quarter of the year, the IDC figures showed. The company became the fourth largest smartphone vendor in China in the period with a 13.9% market share, up from 10.3% in the same year-ago quarter.

For the full year 2023, however, Apple overtook Vivo to become the top smartphone seller with a 17.3% market share, according to IDC. This marks the first time Apple became the top seller in China, but analysts predict its sales will come under pressure again this year.

IDC said Apple's high-end market share in China has been impacted by rival products and limited product upgrades by Apple which reduced the overall attractiveness of iPhones.

It said Apple still attracted demand from many consumers through substantial discounts and promotions carried out through third-party distribution channels.

Earlier this month, Apple offered rare discounts on its iPhones, cutting retail prices by as much as 500 yuan ($70) amid growing competitive pressure.

Jefferies analysts predicted earlier this month that Apple's shipment volumes would continue declining by double digits in 2024, while Huawei is seen bolstering its market share.

They estimate Huawei will ship around 64 million smartphones worldwide in 2024, a significant rise from fewer than 35 million units projected for 2023.

Overall, shipment volume in China's smartphone market was 73.63 million units in the fourth quarter. For the full year, shipment volume was 271 million units, down 5%, IDC said.

Apple releases its quarterly results next week. (Reporting by Yelin Mo and Brenda Goh; Editing by Edmund Klamann and Miyoung Kim and Miral Fahmy)