Pressure is mounting for luxury companies to find their niche and establish their credibility, as the market continues to grow in sophistication and witnesses an influx of new businesses entering the sector, the latest KPMG China report revealed.

"The challenges facing new entrants to China's luxury market are intensifying. The market has become more crowded, as indicated by the rising number of luxury brands recognized by consumers in China," said Nick Debnam, partner in charge of consumer markets with KPMG China.

The report by KPMG, the global network of professional firms providing audit, tax and advisory services, said that on average, survey participants this year recognized 64 different luxury brands compared to 52 in the 2006 survey.

In Shanghai, this rose to 73 brands, while the figure for second-tier cities stood at 52.

The report entitled China's Luxury Consumers: Moving up the Curve is based on a survey of 15 cities, covering an adult population of 66 million where 30 percent were from middle income households.

Respondents were between 20 to 44 years old, and all earned upwards of 3,500 yuan per month, with a minimum income of 5,000 yuan in the larger cities of Beijing, Shanghai, Guangzhou and Shenzhen.

Over the past decade, income and retail spending have continued to rise strongly in China. In 2007, retail sales in China topped 8.9 trillion yuan, up more than 17 percent year-on-year, which amounts to a doubling of China's retail spending in the space of just six years.

Income levels have also risen strongly, but remained low compared to more developed economies. Yearly disposable income per capita among urban households rose by 18 percent to 13,876 yuan in 2007, while per capita consumption expenditure stood at 12,667 yuan, a year-on-year increase of 14.7 percent, according to the National Bureau of Statistics.