Shanghai loves a fashion party, especially one draped with A-list celebrities. In March, the Ferragamo family, along with a 600-strong entourage of global media and Hollywood starlets, descended on Shanghai to mark the 80th anniversary of the house of Salvatore Ferragamo. It was the type of prestige-laden social gathering that oxygenates this ambitious city.

At the unveiling of the Salvatore Ferragamo: Evolving Legend 1928-2008 retrospective at Shanghai’s Museum of Contemporary Art, couture-clad celebrity endorsees Zhang Ziyi, Tony Leung, Christina Ricci and Melissa George led the invited crowd through an exhibition that mixed fashion and art – including a rainbow display of iconic bow-clad flats, a chandelier sculpted from Ferragamo perfume bottles, and an Italian craftsman hammering soft leather handbags in the glow of bare light bulbs. At night, the VIPs regrouped for a cocktail party and catwalk show at the soon-to-be-opened International Cruise Terminal, ending with a fireworks bonanza over the Huangpu River.

The lavish event typifies the modern luxury industry’s aggressive embrace of emerging markets like China. "All this hyped-up marketing of dreams has made luxury companies wildly successful and their shareholders extremely happy,” says Paris-based fashion correspondent Dana Thomas, who also recently visited Shanghai to promote her new industry expose, Deluxe – How Luxury Lost its Luster.

Thomas’ book is widely hailed as an "uncompromising look at the real world behind the glossy magazines and couture shows". Even Tom Ford called her "ballsy". Having covered the fashion and style beat over 15 years for the likes of The Washington Post, Newsweek and Harpers Bazaar, Thomas is well-placed to observe the luxury fashion industry’s shift to mass production for the middle market. This move, Thomas argues, was driven by money-hungry conglomerates and their shareholders, and resulted in the unpublicised outsourcing of ‘luxury’ production to global assembly lines.

The result, according to Thomas, is that retail prices for luxury goods have increased to around 12 times their production cost, and consumers are paying for a fantasy dreamt up by savvy marketing folk. Meanwhile, people like LVMH chairman Bernard Arnault can sail off into the sunset (on his luxury yacht) as the seventh richest man in the world.

Thomas started researching Deluxe in Shanghai, during a lavish press junket for the opening of Giorgio Armani's first China boutique at Three on the Bund in 2004. Subsequent China visits took her to Dongguan, Guangdong province, where a handful of factories – "like gleaming new college campuses" – specialise in manufacturing luxury brand-name leather goods, generally producing many different well-known brands within separate areas of the same facility. While Thomas doesn't name them in the book because of a deal struck with the factory owner, she revealed to Scribes that, "basically, everyone [was there], except maybe Hermes, Chanel, Gucci and Vuitton – I didn't see them, but that doesn't mean that they aren't producing in China too."

Outsourcing production to China costs 30 to 40 per cent less than in Italy, but Thomas happened upon other sneaky cost-cutting measures, too. Like the supposedly aesthetic trends for raw edges and three-quarter sleeves that were actually introduced to save time and money, and the redrawing of old perfume recipes using cheaper synthetic materials. “I was shocked at how much these so-called luxury companies actually nickel and dime their approach to cost and production," Thomas says.

"Today the luxury brand handbag is a study in globalisation," Thomas continues in Deluxe. "Hardware, like the locks, comes from Italy and China (primarily Guangzhou); the zipper comes from Japan; the lining comes from Korea; the embroidery is done in Italy, India or northern China; the leather is from Korea or Italy; and the bag is assembled partly in China, partly in Italy."