The retail unit of Hutchison Whampoa plans to double its presence in China amid signs that its stores and brands are increasing in popularity in the rapidly growing but highly competitive Chinese health and beauty market.

A.S. Watson Group, which has 8,600 stores across Asia and Europe, including Superdrug and Savers in the UK, yesterday opened its 500th Watsons store in mainland China.

Hutchison plans to spend $80m expanding to 1,000 stores in China by 2011 as part of a total investment of about $500m that will take the Watsons group to 10,000 stores wordwide in the next two years.

“The potential in China is huge,” Dominic Lai, A.S. Watson managing director, told the Financial Times in an interview.

Mr Lai is also a director of Hutchison Whampoa, the conglomerate controlled by Hong Kong tycoon Li Ka-shing.

With Beijing continuing to boost the domestic economy – especially at a time of continuing global sluggishness – Mr Lai said he hoped that mainland China's share of Watson group profits would increase from 15 per cent now to 20 per cent.

“China is the most important health and beauty market in the world at the moment,” said Martin So, group chief executive of health and beauty Asia at A.S. Watson.

The group's main consumers are aged 18-24, a demographic group that market researchers say is willing to spend an increasing amount on skin care and beauty products.

Shaun Rein of China Market Research said Watsons has carved out its own niche, between “Mom and Pop” stores and larger department stores, where it has few competitors.

Watsons' own brand products, such as its popular water brands, sell for two to three times the price of competitors.

This price premium is based on attractive packaging and a guarantee of quality which is increasingly valuable to Chinese consumers worried about product safety.

“Watsons understands that they are not just selling cheap, so their stores are designed very well for the upper middle class: they have a nice, bright, clean, airy atmosphere,” he said.

But Paul French of retail analysts Access Asia in Shanghai said Watsons' profits could be constrained by government regulations that prevent it from selling most pharmaceuticals.

“The problem Watsons have is they can't get into the pharmacy business here so they are just selling soaps and shampoo, and the big money is in pharmacy”, Mr French said.

The group, which began in 1828 as a pharmacy in southern China, hopes to expand in healthcare in future.

But it is currently only able to bring in a limited number of health products to China because of government restrictions.