The Big Trend

In a symbolic shift of power, China overtook the U.S. in 2009 to become the world's largest auto market. For the first time, the number of locally made vehicles China produced outnumbered America's--and sales did too. As its consumers buy cars, aided by incentives from Beijing, China's flush manufacturers are vying to snatch up bits and pieces of ailing foreign automakers. Though just one deal was inked in 2009, 2010 will be the year that once-provincial companies exercise their newly acquired clout and make their mark in overseas markets.

The Unconventional Wisdom

It's not just the trillions of yuan in stimulus money the government is doling out that is driving the enormous uptick in China's car sales. Some of those incentives are geared toward rural residents whose purchases of refrigerators and air conditioners are also being incentivized. And a Cash for Clunkers-type tax rebate stokes interest in small, fuel-efficient models. But how to explain sales of luxury brands, like BMW, Audi and Mercedes-Benz, which are also on the rise in China? Farmers can't afford those, and buyers aren't getting kickbacks. The demand is real and unlikely to wane in the near future.

The Misplaced Assumption

As much as Chinese buyers crave the status an internationally recognized luxury brand confers, domestic automakers will also do well in 2010. That's because fakes don't stop at Coach wallets and Longchamp bags. It's not uncommon for Chinese to buy a Chinese model--because it's cheap but sports a shape similar to a foreign car--and then affix a new ornament to the hood or logo to the bumper for the neighbors' benefit. Cash-rich urbanites will want a real Rolls Royce; aspiring billionaires will make do with a locally made lookalike.

The Watch List

BYD. American billionaire Warren Buffet sent this automaker's stock soaring in the spring after buying a 9.9% stake, propelling its founder Wang Chuanfu to the top of Forbes China's list of the mainland's richest people. Cars are just the latest initiative for Wang, who started off making rechargeable batteries and handset components. While BYD's e6 electric car hasn't yet been approved for sale in China, let alone abroad, Buffett's vote of confidence can't be underestimated.

Geely Automobile. As the 10th-largest carmaker in China by both sales and production, Geely seems like small potatoes compared with rivals BYD, Chery and the joint ventures. But the Hangzhou-based company has made headlines this year, becoming the preferred bidder for Ford's Volvo unit. Expect it to lead other Chinese firms in the aggressive pursuit of foreign acquisitions, which will come cheap as U.S. and European auto markets continue to lag.

Up-and-coming markets. China's eastern coast, dotted with metropolises like Beijing, Shanghai and Guangzhou, boasts the greatest concentration of wealth. But first-time car buyers are also emerging from the country's vast interior. Take BMW: Of over 100 dealerships in China, it has some in the coal-and-steel center of Taiyuan and the far-flung northwestern outpost of Urumqi. Keep an eye out for an inland boom.

The Bold Prediction

China's passenger car sales will hit 12 million in 2010. (Sales were below 5 million in 2006 and totaled almost 10 million in 2009.) In this nation of 1.3 billion, where there are months-long waiting lists for cars and people can afford to make down payments with cash, cars are just one more conspicuous, concrete symbol of China's rise.