China's smaller cities and towns offer the greatest potential for retail growth, because of the country's urbanization process and rising incomes in rural areas, according to the Nielsen Company on Tuesday.

According to the latest survey from the consultancy - the Nielsen China Consumer Confidence Report - consumers in the rural areas expressed the highest level of confidence, with a one-point increase in the third quarter, followed by citizens of the most prosperous cities, such as Beijing and Shanghai.

However, overall consumer confidence nationwide dropped to 104 from 105 in the second quarter, the second decline this year. But that decline has been arrested somewhat by a gradual easing of consumer concerns about inflation

"As the inflation pressure gradually stabilized and consumption remained strong overall, Chinese consumer confidence improved a little in the third quarter," said Karthik Rao, managing director of Nielsen Greater China, referring to the slowdown in the decline.

Despite the decline, China continues to enjoy solid consumer confidence, compared with other countries.

"Strong consumption has been one of the major drivers of China's economic growth this year," said Ardo Hansson, the World Bank's lead economist for China.

Consumer confidence levels above and below a baseline of 100 indicate varying degrees of optimism and pessimism.

Globally, consumer confidence fell for the seventh consecutive quarter to 89, the lowest reading since the fourth quarter of 2009, amid recession jitters around the world.

"China is one of the most confident countries and consumers in rural areas were a strong driver behind the solid level of confidence, while the consumer confidence level in cities remains relatively stable," said Rao.

That stability was driven by consumer confidence in the outlook for jobs, with 69 percent of those surveyed expressing optimism about job security in the next 12 months. Meanwhile, 64 percent said they were confident about the prospects for incomes, according to the report.

According to the survey, convenience and good value for money are the top influences on consumers when choosing to shop at a particular retailer. Retailers should focus on promotions, value and location, said the survey.

"Now it's more important than ever to understand consumer needs and demand," said Yan Xuan, president of Nielsen Greater China.

"Manufacturers and retailers need to work together to drive innovative promotions and attract shoppers by leveraging both online and offline activities."