China Predicted To Be Second Largest Consumer Market By 2015

However, consumer goods companies may face challenges trying to come up with winning strategies. "The potential of the market is huge," Vincent Chan, the bank's head of China research told Reuters. "However, the execution in the process could be tricky," Chen, who authored the report, said in a news conference.

Foreign companies such as Coca-Cola Co., Nestle, Procter & Gamble and Swatch appeared well-placed to ride the unfolding consumer boom, the report said. Luxury manufacturers like LVMH whose handbags are coveted by a small but growing group of super-rich, should benefit given their relatively low advertising overheads. But companies seeking inroads into the mass market needed to adapt their products to local tastes and be prepared to slash prices to cope with fierce competition, Chan said. Outsiders would probably find it harder to break into the services sector, where Chinese companies have the upper hand because of their cultural know-how, he said.

Reuters cites other factors and highlights from the survey.

Credit Suisse's third China Consumer Survey, based on a 2006 survey of 2,700 respondents in 8 cities, sheds light on spending and saving trends in the world's most populous nation. As in previous years, the survey concludes that households generally save or invest a quarter of their total income and spend almost the same proportion on food.

Consumers between the ages of 20 and 29, who enjoy the most buoyant income growth, tend to splash out more on clothes and entertainment, making them the prime target group for China-bound retailers.

Some of the country's consumer dynamics are shifting, the report finds: the appetite for electronic goods such as digital cameras and mobile phones is waning, while confidence in the quality of local cosmetics is growing.

As many as 75 percent of those surveyed indicated a reluctance to pay more for foreign cosmetics, up from 62 percent in 2005 and 50 percent in 2004.

More Chinese are traveling, with 52 percent of respondents saying they took a flight in 2006 compared with 48 percent in 2005. The survey found that Southeast Asia is losing popularity to Europe and East Asia as a holiday destination.