There’s something ironic about the fact that the country with the most enduring reputation as a purveyor of cheap goods is the same country that has the strongest appetite for high-end goods.

But that’s exactly the situation in China right now – at least according to consulting firm Bain & Co., whose latest study suggests the nation’s luxury goods market will grow nearly 23% this year, outpacing that of any other country in the world.

In many ways this comes as no surprise; China’s burgeoning importance in the luxury arena has been a well-documented phenomenon for awhile now, with companies of all kinds reaping the benefits. The recently-released Bain & Co. report, which surveyed 1,471 Chinese luxury shoppers and 18 brand experts, simply offers more clues as to where China’s wealthiest consumers are choosing to put their money.

Some of the most compelling findings include the following:

• The amount of money Chinese buyers spent on high-end goods jumped from $21 billion in 2008 to $23 billion in 2009 – an increase of 10%.

• Chinese shoppers increased their domestic luxury purchases from about $9 billion in 2008 to $10 billion in 2009, but the majority of their luxury purchases (56%, or $13 billion) were carried out overseas.

• Chinese consumers say the top reasons they shop overseas are because prices are lower and product selection is better outside of the country. However, the breakdown between domestic and overseas purchases varies by product category: Chinese consumers generally opt to buy cosmetics in China, but purchase watches and jewelry overseas.

• Watches rebounded strongly in 2009, representing approximately $2.3 billion of the $10 billion Chinese consumers spent domestically last year. The only product category bigger than watches was cosmetics, perfume and personal care, which accounted for $2.5 billion of domestic luxury spending.

Stephen Urquhart, president and CEO of Swiss luxury watchmaker OMEGA, isn’t surprised that Chinese buyers purchase the majority of their goods overseas, but argues domestic purchases should not be overlooked.

“There is a price difference for luxury goods in particular in the Chinese market, but while many Chinese shop in other countries, we see many Chinese still opting to purchase in China itself,” he says. “This we see from the incredible growth of luxury brands in China. OMEGA’s growth there is still well up to our ambitious expectations.”

OMEGA, which Chinese consumers surveyed by Bain ranked as No. 2 of the brands they are most likely to purchase, currently has 180 points of sale in China, 80 of which are flagship stores. 

And while Bain & Co.’s analysis suggests the high-end watch market could see 35% growth in China in 2010, Urquhart said his company’s main focus at the moment is strengthening OMEGA’s presence in the U.S. market, where it is in the process of opening 9 new stores and aiming to open 15 to 20 more in the first half 2011. 

Still, Urquhart says China remains a very important part of his company’s focus.

“We have had a presence in China for more than 100 years with encouraging results and this will remain our strategy for the future,” he says.

Expectations for China’s growth seem to know no limit. A separate Bain & Co. study suggests China will become the third largest luxury goods market in the world in five years, which would be a huge coup for the emerging nation, given the fact that its $10 billion market currently trails the U.S. ($55 billion), Japan ($24 billion), Italy ($21 billion), France ($16 billion), the U.K. ($11 billion) and Germany ($10.3 billion). It’s interesting to note however, that China is the only member of the group to log positive growth – and 20% growth, at that – from 2008 to 2009.

Still, it’s important to put everything in perspective – the luxury goods market that encompasses all of mainland China, while rapidly expanding, is smaller than the luxury goods market just in New York, which checked in at $12 billion in 2009.