There was a time when high-end products were designed according to tastes and preferences of consumers in high-income markets. The latter were the OECD economies, with Japan the only Asian member in the group. The trend appears to be reversing with more and more high-end products beginning to be designed according to tastes of non-OECD emerging markets, particularly the mainland Chinese consumers.

China is set to overtake Japan as the largest consumer of luxury goods in the world. A recent survey by Bain Capital on China?s luxury goods market expects aggregate consumption of such goods in China to exceed 100 billion yuan in 2011. Luxury goods consumption in the country has been growing at annual rates ranging from 25-30% in recent years. The growth is one of the highest among all emerging markets and, needless to say, in the rest of the world.

For luxury brands, the going in China has never been so good. Luxury consumption in China is no longer confined to the Mercedes and BMWs bought by state agencies. It has extended to almost all corners of the luxury item range, raking in huge profits for retailers. An example is the high-end menswear chain Hugo Boss, whose sales in China have shown an astounding growth of 73% in the first three quarters of 2011. It is not only expensive cloth that has captured the fancy of the Chinese. China has replaced the US as the largest market for Montblanc. It has also emerged as one of the largest markets for Louis Vuitton.

The trend probably reflects the wheel turning full circle. For several years, since it embraced globalisation and decided to capture world markets through exports, China focused on two distinct specialisations. The first, and the more well-known, was batch production concentrating on production of large volumes at low costs. ?Made in China? Barbie dolls, photo albums, lead batteries,

safety pins, scissors, nail cutters, rubber sandals, apparel (mostly mixed products blending cotton and synthetic fibres) and thousands of other similar items are examples of scale-based batch productions. These, however, are not luxury products. The discussion on China?s success in swamping world markets with cheap exports often tends to overlook its success in producing high-end luxury items as well. Apparel and other textile products including high-end summer and winter wear as well as upholstery and tapestry, finished leather articles particularly wallets, shoes and accessories, durables used as home appliances and finished jewellery (pearls and semi-precious stones) are some examples of high-end products designed by Chinese producers specifically for high-income markets.

While Chinese manufacturers would regularly produce for high-income markets by acting on designs and decors supplied by global retailer brands, these products would rarely be seen in the Chinese market. In this respect, apparel clusters in Guangdong and Zhejiang provinces (for example Hangzhou, Ningbo, Zhancha) are similar to those in Tirupur or Ludhiana; the best of both are visible

only in the western and other OECD country markets. China?s domestic customers had to satisfy themselves with export ?rejects? sold at throwaway prices in Hong Xiao market or Silk Street in Beijing, Yiu Garden and Nanjing Road in Shanghai and several other similar wholesale outlets spread all over the country.

Times have changed. While the wholesale outlets still remain and are favourite places for overseas traders to buy bulk stuff for selling at home, luxury brands now dot all major shopping streets in Chinese cities. There are more of these in the richer southern and eastern parts of China. But, in spite of the geographical unevenness, there is no denying that luxury brands are not only present in China, but are increasingly expanding their outreach in the country. And why not? Going by the soaring sales that Cartier, Omega, Rolex, Chanel, Louis Vuitton and Gucci are experiencing, they would be foolish not to focus more on the Chinese domestic market.

Luxury product sales are being driven by the rich and upper middle-income families, whose annual incomes are between $15,000 and $30,000. In another three-four years, the number of such families is expected to increase to 75 million, which augurs well for future prospects of luxury brands. These families are expected to account for almost a quarter of luxury brand sales in China.

A major driver of luxury brand sales are the young Chinese?the post 1980s generations?who are not only much more brand ?conscious? than the earlier generations, but are also avid pickers of products through online shopping. Other than rising disposable incomes of households and preference for brands, demand for luxury products is also driven by the Chinese culture of giving ?gifts?, particularly among the businesses.

The global gloom is surely not affecting the rich in China, whose spending on luxuries in the year 2011 created a new landmark in such expenses for the country. Pretty soon, the Chinese manufacturers might start acting on designs supplied by foreign labels that suit preferences of none other than China?s rich. The wheel of Chinese production could not have turned a fuller circle.

The author is a visiting senior research fellow at the Institute of South Asian Studies in the National University of Singapore. These are his personal views