China still has an appetite for luxury goods

Growth in China may not be huge in dollar terms, but it helps counter sales declines elsewhere, says Claudia D'Arpizio, a Bain partner in Milan.

"It's not enough for offsetting completely the stronger decrease in the U.S., Japan and Europe," she said.

Fueled by a three-decade-old economic boom that created a still-growing urban elite, China's appetite for luxury goods is surviving the sharpest global economic slump since the 1930s. And Beijing's multibillion-dollar stimulus plan appears to be reviving the economy. Recent reports show gains in factory output, retail sales and capital investment.

By 2015, China will have more than 4 million households with annual income above 250,000 yuan ($37,000), McKinsey predicted in a recent report. That will make it the world's fourth-largest country in terms of its number of households with substantial purchasing power after the United States, Japan and the United Kingdom. McKinsey said the benchmark was adjusted for purchasing power parity for each country.

And most of that money likely will be spent in China. McKinsey said its research found wealthy Chinese do 70 percent of their luxury spending at home, contrary to the industry wisdom that Chinese people make at least half their purchases abroad.

"We know Chinese consumers will continue to spend on luxury items," said Ferragamo's Norsa. "After all, it is a very big pond and in it there is space for many."

Companies are expanding inland to cities like Chengdu to reach customers "who can already afford and who will aspire to the image projected by luxury brands," said Bain's D'Arpizio.

Most Chinese, of course, still can't afford luxury brands and opt for knockoffs. From fake Gucci wallets to Chanel bags, they are widely available despite repeated government crackdowns. Some are so well made that only experts can distinguish them from genuine designer goods.

Wu Yang, a 25-year-old Beijing event planner who bought counterfeit Louis Vuitton and Gucci bags on a recent trip to Shanghai, said vendors wanted 300-500 yuan ($45-75) for a bag, compared with 5,000-10,000 ($750-$1,500) for the real thing.

"I can afford it and nobody can tell it's not real," Wu said. "This represents a girl's dream for big brands."

Her next goal: The latest counterfeit Balenciaga bag.

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