After decades of Made-in-China garments, China's fashion industry is keen to move on from being just a mass manufacturer of clothes -- it wants to own western brands and to sell them to China's 1.3 billion consumers.

The right to sell brands of several international fashion labels locally, such as Aquascutum and Pierre Cardin, have been recently acquired by Chinese clothes makers and sellers.

And the list of western brands up for sale is only expected to get longer as retailers continue to reel under the weight of a global recession.

Acquisition opportunities do increase a lot out there, but investment risk also increases when many of these acquisition targets are struggling to survive, said Ryan Tsang, a senior director of rating agency Standard & Poor's.

China Dongxiang, which acquired ownership of Italy's Kappa brand in mainland China and Macau markets in 2006, is on the hunt again for new targets in the U.S. market, said a source familiar with the situation.

Indeed, now we have too much money but where is the best investment opportunity? There are many opportunities but I only want to make a reasonable investment, Dongxiang chief executive Dennis Qin said at a recent conference.

It's not necessary to be a sportswear brand. We're also interested to look for opportunities in those brands, which are not purely about sports but related to sports, for example, Ralph Lauren, said Qin, referring to the U.S. clothing brand well known for its Polo logo.

But Qin noted there are no formal talks ongoing.

Dongxiang is not alone. Now, even China Investment Corp (CIC), the $200 billion sovereign fund, is showing interest in some top brands in the West.

CIC, which made huge paper losses on its ill-timed 2007 equity investments in U.S. financial firms, was keen to invest in luxury companies like LVMH Moet Hennessy Louis Vuitton SA, which runs about 50 top brands including Louis Vuitton bags and Christian Dior perfumes, according to Chinese media reports earlier this year. CIC declined to comment.

RIGHT STRATEGY?

Early this month, YGM Trading, a Hong Kong garments seller said it agreed to buy the Asian intellectual property rights of Aquascutum, one of Britain's historic luxury fashion brands, for about $22 million.

Aquascutum was sold to the team behind Britain's 125-year-old Jaeger to create a fashion group with combined sales of over $492 million.

YGM initially aimed to buy the whole business of Aquascutum but later decided to only take the Asia part due to concerns about staff pension and high production costs of Aquascutum globally, said Shirley Chan, a YGM managing director.

It is a good time for Chinese firms to buy prestigious and well-established brands overseas and to introduce the brand back to the mainland China market, instead of building their own brands which is too time-consuming, Chan told Reuters.

Mainland China customers are gaining more and more sense of global prestigious brands as the economy opens up, she said.

Thanks to a $585 billion stimulus package and record lending by the country's state-owned banks, China is likely to hit the government's target of 8 percent growth this year.

This stimulus has helped sustain the rise in incomes of Chinese shoppers, who are increasingly viewed as a rich seam of profit for luxury and fashion brands.

Bruce Rockowitz, president of global consumer goods exporter Li & Fung, suggested that cash-rich Chinese enterprises should focus more on acquisition opportunities in domestic markets rather than on buying and managing western brands outside the home market.

I think most Chinese companies don't have a strong enough management and setup yet to oversee these sort of American companies. There is a huge cultural difference, huge mentality difference, said Rockowitz. Li & Fung's customers include U.S. retail giants Wal-Mart and Target.

If I was Chinese, I would look at all the opportunities in China. And I would take western brands and bring them in to China and not the other way around.

(Additional reporting by Fion Li; Editing by Dhara Ranasinghe)

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