GUANGZHOU, China, Nov 4, 2009 (AFP) - For almost a decade, Bao Huihong and her French husband have run a lucrative clothes business in China, counting top luxury fashion brands such as Armani and Dolce and Gabbana among their clients.

Giorgio Armani, client of Dada & Co.

Their Dada & Co. factory in Ningbo, in eastern Zhejiang province near the coast, churns out eight million pieces of women and children's clothing a year, targeting middle to high-end customers in Europe and the United States.

But the couple, like other business owners in China's manufacturing zones, say they are starting to produce their own branded merchandise, as they believe that the Asian giant's days as the main "workshop of the world" are numbered.

"There is no loyalty in this business. If we do not keep lowering our prices, the buyers would give the work to our competitors," Bao told AFP on the sidelines of the biannual Canton Fair in Guangzhou, China's largest trade show.

"But with rising labour costs in China and the fierce competition with neighbouring manufacturing hubs like Vietnam and Cambodia, we are bound to lose in the competition."

So the couple hired a design team of 60 people -- some of them from France and Italy -- to promote Dada as both a domestic and international brand, not just a supplier to the world's elite fashion houses.

"Overseas fashion brands have for years been making lots of money from the products we made. It is now time for us to be rid of their control and be the decision-makers on pricing and profits," she said.

Dada is planning to outsource production and gradually shift its focus from serving overseas buyers to selling its own goods at home -- capitalising on the recent rapid growth in Chinese consumption of designer and luxury goods.

As a test, the company opened five stores in second-tier Chinese cities in the middle of the financial crisis last year, taking advantage of low property and start-up costs.

"Customers are happy to find a home brand which offers products of comparable quality to famous overseas brands," Bao said, adding that Dada will launch between 130-150 franchised stores in China over the next two years.

The company is even mulling a listing in either Shanghai or Hong Kong within five years.

Liu Ximei, who runs her family's high-end shoe factory in Guangzhou, also says she believes it is time to move up the value chain to promote her own brand, in order to be less reliant on dwindling European and US imports.

"These overseas buyers will keep driving a hard bargain. But I am not going to slash prices because I want to maintain the quality of our products. The only way out for us is to build our own brand," she told AFP.

Liu said she was planning to open their first shoe shops in Guangzhou in the next two years. In the long run, she hopes that half of her products will be sold in the domestic market.

"Even Louis Vuitton is expanding its businesses in China -- it would be really stupid for us Chinese manufacturers to ignore our home market," she said.

The Chinese authorities said in October that third-quarter economic growth had accelerated to 8.9 percent -- the fastest pace in a year -- on a flood of government stimulus cash and bank lending.

Global consulting firm Bain & Company has forecast that sales of luxury goods in China will rise 12 percent this year, bucking the downward trend seen in Japan, the US, and other major markets hit hard by the financial crisis.

Mo Pak-hung, associate professor of economics at Hong Kong Baptist University, said the switch to brand-building and providing for the domestic market would become the trend for Chinese manufacturers.

"The switch to brand business is inevitable -- China needs to carve a new niche as other manufacturing hubs in Southeast Asia are catching up fast," he said.

But Mo cautioned that a lack of intellectual property protection would be a major stumbling block, saying: "In China, it is just too easy to copy other people's designs and stick your own label on the products."

David Xu, a Zhejiang-based apparel products exporter attending the Canton Fair, echoed Mo's concern.

"Establishing my own brand will definitely be my long-term objective," he said.

"But to do so now would be risky. If I sell my designer clothes in China today, I can almost guarantee that I will find counterfeited copies in the market tomorrow."by Polly Hui