Automobiles: China Hits the road; A new nation of car buyers is catching up with Japan.(Cover Story)

Byline: Keith Naughton, With Craig Simons in Beijing

For decades You Xiaoyi rode a bike to his job at a state-run factory in China. In the 1980s he upgraded to a Beijing public bus. But today You, 70, owns his own factory, and he's ready for the ultimate status symbol of China's accelerating middle class: a new car. He test-drove Buicks and Audis but settled on a silver $15,000 VW Jetta. "Chinese aren't worried about Maoist ideologies anymore," he says, looking out over a sea of new models on a Beijing lot. "We're concerned only with making money."

Voracious new capitalists like You are making China the hottest place in the world to sell cars. Last year China snapped up more than 4 million automobiles, surpassing Germany to become the world's third largest market. It is now poised to leap past Japan to the No. 2 spot--trailing only the United States. That's why giddy auto execs descended on the Beijing Auto Show this month. General Motors launched its Cadillac luxury line with a ceremony at the Forbidden City staged by filmmaker Ang Lee. Ford showed off James Bond's Aston Martin, and unveiled a new design for its Focus small car--a debut normally reserved for Europe or Detroit. To the world's top automakers, beset by brutal price wars elsewhere, China is the new promised land. Their China profits have been spiking up at ...