WHILE HONG KONG is on the brink of recession, Shanghai is booming. Money continues to pour into the Pudong financial district, and the city's rate of construction has been so rapid in the past decade that locals joke you can close your curtains on one view and wake up to a different skyline in the morning. New bars and restaurants, each one more hip than the last, seem to be opening on a weekly basis in Xintiandi, a district developed by Hong Kong's Shui On Group which opened this summer and incorporates the area's Victorian-era shikumen or stone-gate houses, making it the place to see and be seen. And even on a Tuesday morning, well-heeled shoppers toting designer carrier bags are out in force at the gleaming Plaza 66, Shanghai's answer to the top floor of Pacific Place. Most of the big brand guns including Gucci, Christian Dior and Tod's have already set up shop there; others such as Bottega Veneta and Hermes are hard on their heels, having recently snapped up prime locations on the ground floor. 'Beijing may well be the 'power' capital of China, but Shanghai is definitely its fashion centre,' says Bonnie Gokson, Chanel's regional director of image and external relations. 'Shanghainese women have always been elegant, but they have gained in confidence and style. People here appreciate quality and they love recognised status symbols. 'There hasn't been much fashion information in the way of magazines, but such is the hunger for them that many international magazines are starting to set up office on the mainland and are choosing Shanghai for their base. There's so much going on - new clubs, bars, restaurants are opening all the time. It's a very exciting place to be right now.' Which is why Chanel has just opened its flagship store in Plaza 66. Even though merchandise costs 25 per cent more on the mainland than in Hong Kong, due to value-added and import taxes, the fashion-conscious Shanghainese are spending anyway, with shoes, handbags and jackets reportedly the most popular items sold at Chanel. And unlike Hong Kong, where the cold snap is brief and warm clothes get a couple of months' wear at most, the autumn/winter collection is very important in Shanghai. It's not only wealthy matriarchs who are snapping up such objects of desire - the majority of Chanel's clientele is 25 to 35 compared with Hong Kong's much broader 25-to-65 age range. 'It's a reflection of who lives in the city and the lifestyle they lead,' Gokson says. 'The younger generations have been to international universities, but rather than making their homes abroad they have come back to lucrative jobs with global companies based here. They have got used to a certain standard of lifestyle and Shanghai is more and more able to provide it.' A glance around Chanel's store would prove her point. Two stylish 20-somethings in mini-kilts and knee-length boots are debating the merits of the latest shoes; a 30-something clutching newly minted designer carrier bags full of the morning's purchases is eyeing up a pair of sunglasses while a young mother seems on the point of buying a classic jacket. And if you want to get all dressed up, it seems only logical that you should have somewhere to go. Six weeks ago, about 1,000 glitterati from the mainland and Hong Kong donned their glad rags and trotted out to the old Lung-hwa airport to sit in an abandoned hangar that had once housed the private planes of a general. The reason? Chanel's celebratory bash for its new boutique and its autumn/winter collection with a catwalk show. A white 1930s plane was adorned with the fashion house's logo, announcing to whoever cared to hear that the brand had arrived in the city. 'Shanghai is a great place to set up shop and I wanted to put across the message that we are glad to be there,' says Gokson, who oversaw the event, from finding the venue to arranging the flowers on the day. Thanks to the venue's novelty or simply the Portman Ritz-Carlton hotel's champagne and canapes, sales have boomed immediately after the event. Other fashion houses, such as Celine and Hugo Boss, have reported similar trends since they opened outlets in Shanghai in the past year. Gucci launched its second boutique in the city in September (making four in China), and with sales looking good - even after the September 11 tragedy in the United States - plans to open more new shops on the mainland are already under way. 'The majority of customers in Shanghai are residents rather than foreign tourists,' says a Gucci spokesman. 'And although the local market is more conservative compared to Hong Kong and other parts of the world, the people are becoming very fashion-conscious. While Beijing is a good location for Gucci, Shanghai by its nature is more flamboyant, offering a more extensive variety of brands and product mixes to customers. 'The concept of branded products is still developing in China and the purchasing power of consumers is on the increase, so we are confident that there will be great opportunities for luxury goods here. Shanghai is definitely the fashion capital of China and we believe it has such strong potential that it will eventually become one of the fashion capitals of the world.' Peter Gray, the editorial director for Vidal Sassoon, agrees. 'Shanghai and Chinese stylists rock,' he says. The company chose the city as the best location for its first Asian training academy, an almost scarily cool state-of-the-art building that opened in Xintiandi in May. 'At the risk of blowing our own trumpet, we have set up a great academy. It has been very well received here - better than we could have imagined - and everyone involved is excited about its future.' Academy principal Paul Chattel says the school is already fully booked well into next year with many students coming back for more tuition. Shanghai's geographic and cultural situation, he believes, facilitates the access of Sassoon's expertise to Asian hairstylists. Although the Xintiandi development is expanding, hoping to attract retail outlets as well as restaurants, the next area poised for glory in Shanghai's fashion spotlight is Pudong. Traditionally the city's financial hub, it is now home to the Super Brand Mall, a gargantuan 13-floor, 241,000-square-metre shopping and entertainment complex, complete with multi-screen cinema, virtual-reality games centre, and luxury-brand boutiques. It is the largest mall in China and is expected to open next month. 'Shanghai is the centre of luxury retailing in China and there's a huge amount of activity going on,' says Tim King, managing director of Dunhill for Asia Pacific. 'Dunhill has opened three shops in Shanghai recently, but it is seriously considering leasing space in Super Brand Mall - as is the LVMH Group and doubtless other big names too. 'Will the mall take off? Who knows? But you have to take a gamble sometimes and Shanghai is, after all, the best fashion showcase in China.'