The China Fashion Industry
The Chinese economy continues its dynamic performance, averaging around 10% growth for the last 5 years. As barriers to entry are reduced, more and more businesses are considering their entry into China. This is in an effort to capture some percentage of the returns generated by China¡¯s 1.3 billion consumers.
 
1. General Economy in China
 
China's economy grew by 10.2% in 2005 and 10.7% in 2006 making it the fastest growing major economy in the world. It is forecasted by the banks (Quarterly Bank reports) that GDP would drop to 8% in China in 2007 (Goldman Sachs). In 2006 China's urban living expenditure increased at a higher rate than GDP, both on a national as well as provincial basis.
   
  [Total trade statistics in China]
  (on the basis of the customs clearance, US$ billion)
 
  Expotts   Imports   Trade
Balance
Increase(%) Increase(%)
2002 325.6 22.1 295.3 21.2 23.0
2003 438.4 34.6 413.0 39.9 25.3
2004 593.6 35.4 560.8 35.8 32.8
2005 762.3 28.4 660.2 17.7 102.1
2006 969.3 27.2 791.7 19.9 177.5
  Source : General Administration of Customs
   
2. Fashion Industry in China
  2-1. Overview of Fashion Industry in China
   
China¡¯s clothing market has been growing at 7% and is now a US$60 billion industry.
China¡¯s total output of clothing in 2006 was 51.2 billion pieces, an increase of 10.11% over last year. Total import value of China¡¯s clothing and accessories in 2006 was 1,697 million US$, an increase of 19.2% over last year and the total export value in 2006 was 95,190 million US$, an increase of 28.9% over last year.

In the year of 2006, China¡¯s fashion/ garment industry into a brand-new adjustment and upgrade stage industrial resources was circulated and re-constituted with the gradient transfer of industrial regional layout and enterprises. With the change of domestic garment supply and demand pattern, garment export situation changed and international competitiveness was in face of challenge.
   
  2-2. Market Segments
   
Initially there were two markets for apparel in China:
1) Low Priced Basic Apparel
sold under local brand names and offered in Chinese department stores, foreign hypermarkets or small family owned specialty chains

2) Luxury Brands
sold either in franchised boutiques or upscale department stores. Due to the rapid growth of China¡¯s middle class a new category has emerged, involving quality brands, both Chinese and foreign, being sold in department stores and specialty stores. Consumers in China¡¯s middle class are increasingly sophisticated, demanding higher quality, variety and innovation from their retailers. The new category is highly fragmented and is dominated by specialty casual brands. The new segment has significant growth potential as it is affordable to the middle class but positioned at a price point slightly higher than local brands. Prices in Clothing have dropped slightly in 2006. This is due to the increased competition in the fashion industry in China.

In recent years there are not only an increase of Hong Kong, local Chinese clothing brands and international brands but also an increase of foreign brands. These brands may be mid sized chains that are well established in their home countries but not out of their countries. In addition, there are brands that are created due to the popularity of other brands.
   
  2-3. Consumer Attitudes towards Brands
   
Consumers are highly brand conscious and the fact that one can afford these products is seen as a status symbol. Luxury brands like LV, Christian Dior, are therefore often sought after when purchasing apparel and cosmetics. For many segments, particularly younger consumers, foreign brands that are well known are still regarded as superior and are seen as a status symbol. Brands that are made in US and Europe are more highly valued than those from other Asian countries like Singapore, etc.
   
  2-4. Consumer Attitudes towards Price
 
Although Chinese consumers are price sensitive, a recent survey shows that consumers are increasingly concerned about product quality and customer service, particularly with respect to apparel. Accordingly these elements should be emphasized in advertising and promotional material.
   
3. Retail Industry in China
 
Government efforts in encouraging consumer expenditure have resulted in rising domestic consumption. Statistics show that total retails sales of consumer goods increased by 12.5% to RMB 6,718 billion in 2005. However, it drops slightly to approximately RMB 6,400 billion (US$770 billion) in 2006. However, with the increase in income and domestic consumption, it is expected that the growth rate of retail sales can be maintained at about 10% in the next 5 years.

China¡¯s clothing market has been growing at 7% and is now a US$60 billion industry. Department stores account for approximately 40% of the market. Clothing brands sold in these department stores include both international brands and local brands. Franchise chains and local individual clothing outlets in China account for the other 60% share.

The cities of influence for fashion in China are Shanghai, Beijing and Guangzhou. In addition locals and tourists travel to Shanghai, Guangzhou, Shenzhen for major fashion brands at cheaper prices.