Credit Suisse has sponsored Professor Wang Xiaolu of the China Reform Foundation in his second study of China's grey income and income distribution:

Almost Rmb10 tn in hidden income, or 30% of GDP. Based on a creative survey technique focusing on the correlation between income and spending patterns, and with over 4,000 samples across 19 provinces in China, Prof. Wang estimates that the per-capita disposable income of urban Chinese households in 2008 should be Rmb32,154, 90% above the official data. Total hidden income could total Rmb9.3 tn, 30% of GDP, with about 63% of hidden income in the hands of the top 10% of urban households.

The potential of China's consumer market is even bigger than we expected. Most investors are aware that Chinese income statistics are underestimated, but the exact amount is subject to much speculation. The size of grey income revealed by Prof. Wang is striking and could help investors to understand the rationale of the Chinese government's recent strong push for faster wage growth and a more equitable income distribution pattern - which would also help boost overall consumption.

Big ticket items are the biggest beneficiary. While we think that the Chinese government will try to reduce this huge income disparity problem and the size of the grey income, this is not likely to change significantly in the near future. Chinese property, European luxury goods, high-end retailing and Macao gaming could be the biggest beneficiaries of the current income distribution pattern. In particular, we think BMW, Galaxy, Hang Lung Properties, Mengniu, Swatch and Vanke will benefit most.

David Fuller's view I regard this as extremely bullish for Chinese consumer stocks. I also like personal testimonies such as one of Eoin's emails below.

A while back I mentioned my own experience and sometimes frustration at London auctions of Chinese collectibles earlier this year. Popular items often soared 5, 10 or even 20 times above the auctioneer's estimates as people from mainland China, mostly in their 30s and 40s, thought nothing of splashing out 6-figure sums in a bidding contest.

Colleague Jackson Wong was in Paris last weekend and popped into Galeries Lafayette Department Store. He said Asians were piling in - mostly Chinese and some Koreans - snapping up big-ticket luxury goods and mainly paying in cash. They know they will be getting the genuine item rather than an Asian knock-off.

This degree of conspicuous consumption last occurred with the Japanese in the late 1980s. It was the sign of a massive bubble so why don't I say the same about Chinese consumer spending today?

In 1989 the Nikkei soared to unbelievable heights driving many PERs above 100. Those valuations were not exceeded until the Nasdaq bubble which was sector specific. Today, the estimated PERs for many Chinese stocks are in the 10 to 12 region. China's stock market may become a massive bubble at some stage but it is a bargain today. However China bulls may have to be patient for a while longer as supply in the form of IPOs is still a headwind.