In search of lucrative investment opportunities, people have increasingly turned their attention to the fast-growing economies of the East, and particularly towards China. Decades of unprecedented growth, fueled by high levels of investment and exports, have made China’s economy the second largest in the world and a major destination for foreign investors.

Chinese consumer ETFs look particularly well placed to profit as China’s leaders look to boost domestic consumption.

But the composition of China’s economy remains unbalanced and heavily reliant on export- and foreign investment-led growth. This puts the country partly at the mercy of other economies, something China’s leaders are determined to redress.

According to recent government statistics, domestic consumption (private and public) in China constitutes just 55% of the national GDP compared to the average global rate of 80%. Private consumption accounts for only about 36% of GDP – about half of what it is in the United States.

China’s senior economic leaders have recognised the problems associated with the current composition of the economy and, as a result, have put the spotlight on domestic consumption for 2013 in an attempt to stimulate more balanced, sustainable growth.

Wen Jiabao, the country’s premier, made it perfectly clear that domestic consumption was firmly on the agenda. In March last year, he said: “We will work hard to expand consumer demand. We will move faster to set up a permanent mechanism for boosting consumption. We will vigorously adjust income distribution, increase the incomes of low- and middle-income groups, and enhance people’s ability to consume. We will improve policies that encourage consumption.”

There’s no mistaking China’s commitment to boost domestic consumption.

The country has been moving in the right direction. In the first three-quarters of last year domestic consumption was a larger contributor to the national GDP growth than investment – the first time in ten years.

Huang Hai, a former assistant minister of commerce, said China will roll out “concrete measures” to stimulate consumption. Examples include boosting sales of home appliances and other durable goods by offering them at subsidised prices; loosening consumer credit policy; giving civil servants pay raises; raising personal income tax exemptions; abolishing agricultural taxes; and allowing a moderate appreciation of the Chinese currency, the renminbi (RMB)

All this creates a huge opportunity for investors who can successfully target the Chinese consumer market. According to a report from management consultants McKinsey, China can boost consumption by 15.2 trillion RMB (approx. £1.59 trillion) by 2025 if the government successfully reorients the economy. Professor Steven Roach of Yale University and a former non-executive chairman of Morgan Stanley Asia is confident that the coming changes will “create a consumption dynamic that will outstrip the growth of any consumer market in the world.”

So how can investors profit from this dynamic? Western consumer discretionary companies selling into China, such as automobile manufacturers and purveyors of luxury goods, have already done very well and look set for continued growth. Investing in exchange-traded funds (ETFs) providing exposure to quality consumer discretionary brands certainly makes sense. Possibilities include the Amundi ETF MSCI Europe Consumer Discretionary (CD6), which is loaded up with European luxury names.

However, China has vast ambitions to create its own national brands and move up the value-added chain. To facilitate such an evolution, the authorities in China have begun to put in place a regulatory environment that promotes local firms. National brands are likely to emerge as a force to be reckoned with.

Indeed, this is already underway. Examples include Gree Electrical Appliances, which has grown to control over 50% of the air conditioner brand market in China and become the number one air conditioner brand in the world; and Youngor Group, which designs, manufactures and sells clothing apparel for aspiring gentleman, and has become one of the most valuable clothing brands in China, according to a study commissioned by advertising giant WPP.

It follows, therefore, that domestic Chinese consumer companies are best placed to grab the largest share of domestic consumption growth and could represent a particularly smart place to invest. Fortunately for investors, there are exchange-traded funds (ETFs) that specifically target this sector. The two main contenders in this space are the db X-trackers CSI 300 Consumer Discretionary UCITS ETF (XCHD) from Deutsche Asset & Wealth Management, part of Deutsche Bank, and the Global X China Consumer ETF (CHIQ) from independent ETF provider Global X Funds.

The db X-trackers CSI 300 Consumer Discretionary UCITS ETF, which is listed on the Deutsche Börse (Xetra), provides direct access to Chinese consumer discretionary companies via exposure to the CSI 300 Consumer Discretionary Index. This index reflects the consumer discretionary sector of the CSI 300 Index. The CSI 300 comprises the 300 largest stocks, as measured by market capitalisation, listed on the Shanghai and Shenzhen stock exchanges. The consumer discretionary sector has 31 constituents and includes names such as Gree Electrical Appliances (see above), SAIC Motor, Suning Appliance, Shenzhen Overseas Chinese Town, and Qingdao Haier; Youngor Group (mentioned above) is also included. Automobiles manufacturers and household appliances are the largest industry groups with weights of 23.91% and 22.70% respectively. The fund has a total expense ratio of 0.50% (plus index replication costs) and is registered for distribution across much of Europe including the UK (UK Distributor Status), France, Germany, Italy and Netherlands.

The Global X China Consumer ETF is listed on the NYSE Arca and is benchmarked to the Solactive China Consumer Index, an index tracking the performance of Chinese companies (or companies focused on China) whose main business operations are in the consumer sector. The index has 40 constituents and includes names such as Dongfeng Motor, Belle International, Great Wall Motor Company, China Resources Enterprise and Want Want. Weights are capped at 4.75%. The consumer sector includes companies whose main business operations are focused on producing or selling goods or services to private consumers. Examples include producers of food, beverages, apparel, household and leisure goods, cars and related items, media content, operators of retail stores, and companies offering services to private consumers. Retail is the largest industry weight with 20.26%, followed by consumer staples with 17.94% and food with 14.30%. The fund has an expense ratio of 0.65%.

Potential alternatives include the Guggenheim China Small Cap ETF (HAO) and iShares MSCI China Small Cap Index ETF (ECNS), both listed on the NYSE. Small-caps are worth a look since many smaller companies in China tend to be more geared towards domestic demand and consumption.

It’s worth adding that investors who assume that their existing allocation to China includes sufficient coverage of consumer companies would be wise to check their specific exposure for some of the largest China ETFs actually have no exposure to the sector. For instance, the London-listed iShares FTSE China 25 Index ETF (FXC), which is one of the most popular China ETFs with almost £1.2 billion in assets, has zero direct exposure to consumer sectors. Investors could, therefore, use one of the db X-trackers or Global X funds to boost their consumer exposure by tacking on a position commensurate with their conviction and existing exposure.

(Sanjay Sharma contributed to this article.)