China's perpetually rising costs and currency have, of late, been undermining the country's export industry. But they have also encouraged Chinese clothing retail entrepreneurs to focus on their domestic market - most notably its demographic of Internet-savvy, younger generation consumers. 

And of course, a key benefit of serving domestic consumers is the ability to create brands and control the whole industrial process, from sourcing materials, to design, manufacture and marketing.

Shanghai-based Greenbox, China's leading children's clothing brand and e-commerce platform, is a good example of this.

In August, the popular retailer inked a deal with Disney to design and sell clothing branded with the characters of three classic Disney franchises - Mickey Mouse, Winnie the Pooh and the Disney Princess brands - exclusively in China, and using Greenbox's own labels. The deal came after Greenbox expressed it was interested in being more than just "an OEM manufacturer."

"Designing is our key advantage, and that is what makes our brands so attractive," says Greenbox CEO Wu Fangfang, an experienced children's clothing designer.

Lately, Greenbox has been investing heavily in recruiting designers - including those from Hong Kong and Taiwan - to introduce unique styles favoured by young Chinese parents. Prior to its deal with Disney, Greenbox (whose popular in-house brands include Jenny Bear, Miss De Mode and M.I.L Boy), had already gained its own fans at an incredibly fast speed.

In 2010, the company earned CNY80m (US$12.4m); a fourfold increase from 2009, with the majority of revenue coming from its own shopping platform, lvhezi.com, as well as a store at Tmall.com, a renowned business to consumer website operated by Taobao, China's most commonly used online shopping platform, based in Hangzhou.

This year, with support from the Disney deal, Wu says she expects Greenbox to earn CNY250m (USD38.8m).

Greenbox is not the only success story in terms of domestic market growth, however: Beijing-based La Miu, an online lingerie retailer established in 2008, is also enjoying fast growth.

The brand - known as the 'Victoria's Secret of China' - targets young Chinese women aged 20 to 28 with its Japanese-inspired styles. With the logo 'Tokyo Girl's Fashion', the company has a variety of collections with include 'Sexy Loli', 'Office Lady' and 'Underwear for 12 Star Signs'.

Dong Lu, La Miu's founder, said at an e-commerce conference in September that La Miu satisfies "Chinese women's longing for being sexy and pretty." Backed by a team that includes designers and marketing specialists who used to work at Victoria's Secret and Japan's Wacoal, La Miu now sells about 10,000 pieces per day, nationwide.

However, one element that may hamper Greenbox and La Miu's success has to do with timing, according to Xia Tao, CEO of Nanjing-based Xiatao Consulting.

For example, said Xia, Tmall used to be a hotbed for incubating Chinese start-ups, because selling on this platform did not require a lot of investment. "Now, Tmall is just like other shopping malls; being so demanding on the entry fee," he says.

Earlier this month Tmall announced a new rule, which would raise the annual fee from CNY6,000 (US$931.5) to CNY30,000 (US$4657.7), and demand an initial margin of up to CNY150,000 (US$23,288.50).

In addition, says Xia, start-ups are not likely to get help from banks either, which have recently tightened their rules on loans.

"Banks now lend money only to large, state-owned companies to reduce risks," says Xia. "So, it's hard to even start a company."

So, although the rising Yuan has pushed some garment manufacturers to work in a greater capacity with Chinese companies, Xia says many still prefer working with western clients.

"There are trust issues, such as paying money on time," he says. "Also, some of my clients have told me that working with western clients - especially those running big names - can help them improve management and skills, so they become more competitive."