A study in contrasts, China is showing signs that its rapid economic expansion may be  unsustainable, even as western companies continue to develop a presence there to woo a growing middle class.

Some on Wall Street are bearish on China, including Jim Chanos, who said in a recent CNBC “Squawk Box” interview, \”If you looked at the performance of the banks over the last two years… they have been great shorts. They have been going down — they\’re down 30 percent over the last two years.\”

The country has targeted economic growth of 7.5% in 2012, representing a decrease compared to recent years, according to a recent article in IBTIMES. But China’s National Bureau of Statistics recently reported that the country’s GDP decelerated to 8.1% during the first three months of 2012, compared to the previous year, a figure that is lower than the 8.4% analysts had expected.

Yet these economic developments have not slowed expansion plans for many western companies. From Levi’s to Louis Vuitton, and from Proctor & Gamble to Starbucks, the last eighteen months has seen a veritable explosion in companies looking to gain a foothold in China, eager to attract its booming middle class.
Just as in the U.S., where “middle class” is an ambiguous term, “middle class” in China also continues to defy classification. Many analysts peg it as those making between $6,000 and $15,000 a year, which represents about 350 million households. Based on international dollars, that figure is about one-third of the average spending power (GDP per capita) in the U.S.

Chinese consumers are economically optimistic, and their spending reflects that. Nearly 8 out of 10 Chinese consumers (79%) say current economic conditions in their household are \”very\” or \”fairly good.\” More than 7 out of 10 (71%) feel the same way about the country\’s economy. And half are bullish on the global economy, according to the CCI and Cotton Incorporated Chinese Consumer Survey. Meanwhile, Euromonitor International predicts consumer expenditures on clothing in China will increase again in 2012, to $147 million compared to $139 million in 2011.

Compare that to the U.S., where just 31% of consumers described themselves as being “very or somewhat optimistic” about the U.S. economy, and a full 81% were “very or somewhat concerned” about a reduction in their annual household income.

Economic optimism and discretionary spending go hand in hand,” says Kim Kitchings, Vice President, Corporate Strategy and Program Metrics. “Eighty five percent of Chinese consumers say they plan to spend the same or more on clothing purchasesin the next year, and just 15% say they will spend less.”

The Consumer Survey found Chinese consumers dedicate about 9% of their budgets to apparel and home textiles. Chinese consumers shop for apparel about once every four months, spending about $262 per capita annually on clothing for themselves. In this respect, they lag behind their Western peers in the U.S., where consumers shop for apparel twice a month in stores and once per month online, and spend about $638 annually.

However, the Chinese Consumer Survey also found 22% of shoppers  are buying higher priced or higher-end apparel than they did 12 months ago, and those living in tier 3 regions are significantly more likely than those living in the other tiers (29% vs. 19%) to buy higher priced apparel. “China is still very much a saving society, with the average consumer saving about 40% of his or her income every year,” Kitchings says. “But this may change in the coming years if wages continue to rise and consumers have more discretionary income – and a new willingness to spend it, too.”

Most (56%) cite “replacement” as the reason they purchase new clothing, while 55% do so due to “seasonal change,” and 32% to add new items to their wardrobes. Twenty five percent are attracted by promotions, and 18% cite a wish to “be trendy”. Unsurprisingly, the percentage of those who purchase new  clothing in an effort to be trendy increases as household income increases; just 9% of consumers making less than $308 per month, say they do, compared to 23% of consumers making $900 or more.

Most Chinese consumers shop for clothing at department stores (41%), followed by specialty shops (36%) and independent stores (30%), according to the Chinese Consumer Survey. Just 3% use the Internet, compared to the 27% of U.S. consumers who shop for clothing online and the 6% of U.S. consumers who purchase most of their clothing online, according to the Cotton Incorporated Lifestyle Monitor™ Survey. But Internet access is a significant obstacle; roughly 34% of the Chinese population had access in 2010, according to World Bank data, compared to 80% of the U.S. population.

“As access to the Internet becomes as ubiquitous in China as it is here in the U.S., I think we will start to see purchasing behavior shift online, too,” Kitchings says.

Despite questions about the country’s ability to sustain its economic growth, China’s citizens still embrace a healthy optimism and a willingness to spend – and those brands and retailers able to capitalize on that will reap significant rewards.