At the new M&M's World chocolate megastore in Shanghai, the decor is a tribute to Chinese culture. There's a Great Wall of Chocolate and a massive M&M statue wearing the armor of a Terracotta Warrior. Chen JieTing, 20, posed for photos with an M&M wearing Bruce Lee's yellow jumpsuit. "I love M&Ms -- not too sweet and so cute," she said.

Chinese consumers traditionally prefer salty snacks, but the world's chocolate makers have been making converts -- and competing fiercely for market share -- in the high-stakes market that's home to 1.37 billion people. The local chocolate market has been growing 12% annually, according to Euromonitor International. China's embrace of chocolate has helped push up cocoa prices and contributed to fears of an international shortage. (Mars Inc., the maker of M&Ms. has warned the industry will need 1 million more metric tons by 2020 and is working on sustainable farming to boost yield.)

Meanwhile, Western brands have upped the ante in China by building factories and innovation centers, launching flashy campaigns, buying local chocolate makers and creating retail experiences like the M&M's store, which opened in August.

Mars, which also makes Snickers, has come out ahead, with a projected 39% of the Chinese market in 2014, according to Euromonitor. Its biggest hit is the Dove brand, which accounts for a whopping 34% of national chocolate consumption.

After the era of Chairman Mao Zedong, "when China's doors opened in 1979, you really had a billion people who had never tasted chocolate," said Lawrence Allen, a former Hershey and Nestlé executive in China. "It was a virgin market."

Companies rushed in and learned by trial and error -- Mars tried first with M&Ms. he said, but Dove was what took off. Hersheys had a hit with bite-size Kisses while others were selling 60- or even 80-gram bars, because "Chinese people do not sit down and eat 60 grams of chocolate at a time," said Mr. Allen, author of "Chocolate Fortunes: The Battle for the Hearts, Minds, and Wallets of China's Consumers."

There were cultural differences too. China traditionally classifies foods as "heating" and "cooling," concepts not about temperature but about the effect on the body. Chocolate is a heating food, so it's ill-advised for summer.

Mr. Allen said he wasn't sure chocolate would be a hit in China until witnessing a scene at a Beijing supermarket in the late 1990s. A woman put chocolate in her cart, then her husband eyed the price and put it back. "She was furious -- she looked daggers at him, like, 'don't touch it, don't mess with my chocolate.'"

Among Mars' local innovations is a chocolate snack for kids that contains rice, which parents see as more nutritious. Ferrero Rocher's gold foil-wrapped candies have built-in appeal in China, where gold -- symbolizing wealth -- is popular for gifting.

Hershey, which opened an Asia innovation center in Shanghai, has been working on products that appeal to the Chinese market. It also launched a global brand, Lancaster, in China. So what has Hersheys learned?

"In the U.S. it has to be sweet, sweet, sweet, more sugar is better -- not in China," Frank McCafferty, senior manager for chocolate product development in Asia for The Hershey Co., told the American Chamber of Commerce in Shanghai. Chinese consumers also like "a creamier type of mouth feel." They want bite-size pieces that can be shared hygienically. While Chinese diners don't mind dipping their chopsticks into communal serving plates, they don't want anybody else touching their chocolate.

Business is concentrated around holidays, and Chinese New Year is the biggie, when brands' gold-covered gift boxes come out. There are novel annual efforts too: Mars has been developing a gifting season around the "gaokao," the intensely competitive college-entrance exam.

The ultimate idea is to make chocolate more a part of everyday life, since it's not yet a top-of-mind snack. For Mars' Snickers, AMV-BBDO London and BBDO China jointly worked on a commercial featuring classical kung fu fighters and Mr. Bean (known as "Funny Bean" in China) that portrays Snickers as the antidote to hunger. In a competitive category, creating an emotional connection is even more important, said Yeat Mung Koo, co-managing director of BBDO Beijing.

"There are lots of new brands coming into play that consumers would love to try -- consumers don't just stick with one brand," he said. "So it's even more important to give them a reason to buy over and over again, and make sure it's a brand they want to participate in."