At a Prada factory set in the rolling hills of Tuscany, a crocodile and two pythons wait to be turned into bags.

The skins - still showing a perfect crocodile shape and two long, fat-bellied snakes - lie across a glass table together with a couple of stingrays and some lizard hides, imported from Asia and soon to be shipped back as some of the most coveted, expensive accessories in the world.

Two grey-haired, bespectacled men pull out roll after roll of skins from underneath the table, explaining in hoarse Tuscan accents how each might add to the 80 or more different components that form a Prada handbag.

The airy, white factory rooms are dotted with colourful leather scraps and rolls of yarn in jewel-bright colours.

Men cut heavy hides and women stitch tiny loops and fastenings for satin pouches in this workshop, one of hundreds that used to dot Italy.

Artisan cobblers, bag makers and weavers are at the heart of Italy's long tradition in crafts and design. But many smaller, family-owned businesses have been hit by cheap competition from Chinese imports.

Former textiles clusters such as Biella in northern Italy are now home to crumbling, empty factories with smashed windows.

But the artisans who slowly and skilfully make one bag, one pair of shoes, one evening dress at a time for big labels such as Prada, Armani and Versace, have resisted the decline.

In fact, the rise of China gives them added job security.

In the crowded shops and traffic-clogged streets of Shanghai, the appeal of Italian design in an emerging market becomes clear.

"Buying Italian fashion is a way to show that I have reached a certain level of consumption," said Wu Qiaojuan, a newspaper advertising editor in her early 30s strolling through the smart Plaza 66 shopping mall in Shanghai.

Wu wore jeans and a colourful blouse by Versace - her favourite label. In a recent AC Nielsen poll, Chinese buyers named Versace as one of the most desired brands along with Chanel and Louis Vuitton.

Another Plaza 66 shopper explained that the counterfeits sold on every street corner were not a substitute for the handmade bags and shoes from Italian or French workshops.

"If you are rich and buy fakes, you would really lose face," said Mrs Guo.

While fashion houses do worry about seeing cheap ripoffs of their bags on Chinese markets, and have set up legal departments to deal with the problem, they say sales are not directly affected since fakes have a different target group.

"Hong Kong people enjoy looking for 'flaws' on handbags, or clothes they see on others. 'Look, that's a fake. I can tell, the buttons are different'," said Bobo Lee in Hong Kong, a more established market for luxury goods.

"Chinese shoppers like me, I definitely would not buy any named brand products that are 'Made in China' . . . it's a real turn-off. I would immediately throw it back on the shelf."

The Chinese craze for Italian designers started in Hong Kong, which was free from the import duties that used to hold back luxury sales in mainland China, and home to plenty of upwardly mobile entrepreneurs and bankers who saw branded clothes as a way to confirm their newly-won social status.

China also has a long tradition of appreciating luxury goods, from silks and embroidered cloth to expensive delicacies such as abalone and shark fin soup.

On the mainland, the Communist revolution made bourgeois pleasures taboo for several decades, but as Deng Xiaoping's reforms unshackled China's economic forces, demand for exclusive clothes and accessories slowly gathered steam.

China is now the third-biggest consumer of luxury goods after the US and Japan.

While many wealthy Chinese shop when travelling abroad, where the branded bags and clothes are cheaper, almost all major fashion labels are also expanding aggressively in China itself.

Versace's chief executive Giancarlo Di Risio said that the company would open more directly operated boutiques; it currently has two in Shanghai and one in Beijing, all of which are making a profit.

"It's a very interesting market.

"I expect it to reach a remarkable maturity within five years and I'm watching it closely," Mr Di Risio said.

Versace also opened a special accessories factory just outside Milan, betting that investment in costly Italian craftsmanship will pay off in the battle for high-end customers.