By Jane Barrett
MILAN, Nov 18 (Reuters) - Big Italian luxury brands are gleefully opening stores in China to lure the booming economy's newly rich and are racing to ensure their goods are "must haves" for the fresh big spenders.
But smaller firms tremble at the cheaper products flooding out of China, fearing they will be put out of business by new rivals with lower labour costs and a weak, export-boosting currency.
"China is both an opportunity and a danger," said Mario Boselli, the head of Italy's fashion chamber industry group.
"We have an opportunity to take our quality goods to China but sales will take a long time to trickle through while Europe will quickly be flooded with cheap Chinese goods," he added.
At the top end of the market, luxury guru Diego Della Valle, head of Tod's leather group, regularly travels to China and is thinking about a 10-year plan to open shops beyond the rich centres of Shanghai and Beijing.
"Asia is and will be a huge luxury market and when I think of China's potential, I smile. As it grows, more people will have spending power and want status symbols so we're investing to make sure we're on the status symbol list," he said.
On the shopping lists for the growing number of China's wealthy are Italian clothes, bags and shoes as well as top quality European jewellery.
China's economy is expected to grow around 8.5 percent this year and with a jump in trade and the promise of huge investment to prepare for the 2008 Olympics, there is money to be made.
Gucci's core brand makes 16 percent of sales in Asia excluding Japan but CEO Domenico De Sole reckons it could soar to 30 percent in 10 years, driven by growth in China.
While there is plenty to cheer the luxury gang along, other less familiar hurdles still stand in the way of growth.
A brand like Ferrari can attract customers simply via its image and essentially only needs to deliver a car without having to set up showrooms or spend heavily on advertising.
But for softer luxury firms, getting their names out and about is key.
"It's a different game from countries they're playing in now. China has little advertising tradition, you have to find partners who know the market and local managers who are hardly numerous," said Andrea Ciccoli, a consultant with Bain & Co.
HIGH COSTS FOR SMALL COMPANIES
While the likes of Tod's and Gucci can woo new luxury buyers from the glossy pages of international magazines, smaller niche players shudder at the cost of entering a market that yet has to prove itself and where even top-brand stores are often empty.
A more wide-spread fear shakes the swathes of small Italian companies that spin wool, make buttons and knit fabrics -- skills that have been the strength of the "Made in Italy" moniker but which are now being done more cheaply in China.
"Even Italian companies go and buy their cashmere from China not from their own so how are we supposed to survive?" material magnate Luciano Barbera asked a recent luxury goods conference.
Della Valle wants Italy's government, which has toyed with the idea of import tariffs to fend off China's competitive advantage, to set up trade links to allow small Italian firms to strike joint ventures with Chinese firms and win customers.
He has suggested a trade fair to get small firms into the booming market.
But fashion chamber's Boselli, whose family has a textile firm, says stronger action is needed on a Europe-wide scale to fight against what he calls Chinese "protectionism" -- the weak yuan currency and tax breaks for exporters.
Another strong concern is the quantity of fake luxury goods flowing out of China and Taiwan.
"We're not playing the same game and a lot of our small and medium-sized companies, which are Italy's wealth, could be destroyed if we don't take action," he said.