Beijing is eagerly embracing high fashion – but what does it make of the subtle designs of Yohji Yamamoto?

The reason that Yohji Yamamoto gives for staging the first fashion show in the Ancestral Temple of Beijing's Forbidden City seems highly suited to his enigmatic image. "For me, the name sounded so beautiful," he whispers, backstage after the night-time event. "I liked the idea of the forbidden."

While most fashion shows are a frenzy of noise and sound, the ancient grandeur of the walled city, bathed both in moonlight and the white lights of the temporary catwalk, imparts a rare atmosphere of serenity in the hectic capital.

There were also political, social and commercial motivations for the Japanese designer's decision to show his Y's collection – his original line – inside the 15th-century Imperial palace. The 64-year-old Yamamoto, who usually shows Y's in Paris, was invited to stage a collection in conjunction with the Chinese People's Association for Friendship with Foreign Countries – the first time that association has presented a fashion show with a privately owned, non-Chinese fashion house.

The idea was that the new clothes would be auctioned after the show, with the proceeds going to the Yohji Yamamoto Fund for Peace, which aims to nurture China's next generation of fashion designers by sponsoring a Chinese designer through two years at a fashion school in Japan or Europe; the Foundation will also sponsor a Chinese model to make their first appearance during Paris Fashion Week.

There was an inevitable political dimension to a Japanese designer working with the Chinese government, given some Chinese people's lingering resentment of Japan. Yamamoto plays this down. "It's not political. I am going to open a store here, then Chinese people will come and shop there, and then they are happy. The real art is making people happy, but also asking questions about society."

With China's new overnight millionaires, and consumer mania – it is set to overtake the US as the second-biggest consumer of luxury goods after Japan – all the big designers have their eyes on the country as a lucrative emerging market. Fendi even hosted a fashion show on the Great Wall last year. "I believe in this market," Yamamoto says. "I think it will be unbelievably big." However, given his leftfield position in the fashion industry (don't call it avant-garde – Yamamoto dismisses the avant-garde as "a tiny fashion category. It became so cheap and pretentious, I hate it"), as well as the Chinese penchant for big brands, are consumers ready for Yamamoto?

With around 12 Y's stores planned to open in China by 2010, the softly spoken designer must be confident that they are. "I have been walking down the side street of fashion's road. Maybe my brand will be the same in China."

Walking down real streets in Beijing, past a half-built Nike store and the luxurious Oriental Plaza mall that houses labels such as Burberry, Just Cavalli and Armani Exchange, logos and brand names – real and fake – hail you like a kind of hallucinatory semiotic babble. That there are some logos for Y-3 (Yamamoto's range for Adidas) among them suggests that Y's may tap into a low-level awareness of other facets of the Yamamoto brand. But there aren't many people in this city who look like potential Yamamoto customers. The preferred every day uniform owes a lot more to Los Angeles, or to "Korean street style", as one teenager told me, than the challenging, sometimes androgynous shapes of Yamamoto.

It's a fashion cliché that emerging markets – Russia, India, and most recently China – tend to go through a bling phase before refining their tastes and embracing more niche labels. To some extent this is borne out by some of the more high-maintenance guests at the Y's show. One Louis Vuitton- bag-toting woman in the front row looks slightly baffled by the leather jackets with jagged edges, and the full skirts with rolled hips. This isn't the safe, Western glamour embodied by some of the more popular labels in China, such as Max Mara and Louis Vuitton (though earlier this year, some consumers boycotted Vuitton, along with other French brands, after the French protests against China's treatment of Tibet).

Rather, the clothes express "the essence of Yohji", as the man himself puts it. "I usually create my clothing for the audience who come twice a year, but this was a special one-off, so I had to show my base statement." That distillation of his aesthetic was conveyed through a signature blend of asymmetry, deconstruction, romanticism, and the influence of classical Japanese dress.

The women's looks include leather or suede blazers that caress the body like a second skin and end in raw, jagged hems, teamed with full, floor-sweeping skirts in silk, or loose, fisherman-style trousers. A Victorian romance infused the double-breasted coats and floor-length evening dresses in black silk, with twisted fabric made into a rippled strap or a large rose; all were lent a quietly assured toughness by flat work boots. Victorian influences also appeared in the menswear, in the form of a top hat and dandyish frock coats, along with Yamamoto's signature oversized proportions on baggy suit trousers.

The fusion of traditional and modern, East and West, seemed appropriate to the juxtaposition of the sleek metal-walled catwalk area, set amid the splendour of the Forbidden City, with its neat courtyards, miniature bridges over water and sloping roofs decorated with snarling dragons.

Two days after the show, the clothes were auctioned amid the gold-and-red extravagance of the Beijing Hotel's grand ballroom. The tables were full of Beijing fashion-lovers, Hong Kong celebrities, customers of Sotheby's Asia, and Japanese and Taiwanese shoppers and press, discreetly bidding with barely a raised wrist.

Among them was Gary Wong, the owner of a chain of boutiques in China. He stocks Y's in two of his Beijing shops, and says that customers of multi-label boutiques such as his are open to more niche labels, such as Y's and Yohji Yamamoto. Although one of his customers, an advertising executive, says that the mainstream view of fashion is about using clothes as status symbols, and many wealthy Chinese women still aspire to wearing a complete look straight off the catwalk, the idea of mixing brands is beginning to catch on, especially as more multi-label stores open across the country.

Wong believes that the more consumers are exposed to different brands, the more experimental they will become. One such customer, a Chinese painter who bid €24,000 (£19,000) for a long, black-and-white coat- dress with a chiffon-swathed bridal hat, as a surprise for his girlfriend (and apparently in the hope that she will marry him), says that he loves Japanese designers. "They understand three dimensions, they understand light and shade, and they learn from the West but go back to their own culture.

"So far, there is only a small group of people in China who understand it. But I think they will come to appreciate Yamamoto's brilliance. There is an obsession with copying the West, but with patience, Chinese consumers and designers will find their own creative path."

A recent survey by Bergstrom found that Chinese consumers are increasingly looking for products that reflect individuality. Youth-focused craft markets and shops showcasing local designers are springing up, particularly in Shanghai, where young designers rent stalls to sell their creations. China already has several interesting young fashion designers, some of whom featured in the V&A's China Now exhibition. With educational programmes such as Yamamoto's, they are more likely to make an impact on the international fashion scene.

Another guest at the auction, Adrienne Ma, the daughter of the famed Hong Kong fashion entrepreneur Joyce Ma, had a more lyrical take on the direction that China's fashion scene will take. She believes that the big labels, such as Louis Vuitton and Burberry, will catch the first round of new customers, but soon people will start to look for more unusual alternatives.

"Every country is like a 24-hour clock," she says. "The sun suddenly rises. Then there is a bright, bright time, when consumers embrace exuberant, perhaps obvious labels. But then night falls, and the time comes for something more poetic and intellectual."

Two words that fit Yohji Yamamoto perfectly.