Hamish McRae: Are we prepared for the next revolution?

If, as many believe, China will dominate world manufacturing, what will it do to the car industry?

Consider these two "firsts" last year. One was that China overtook the UK in car production. We built 1.65 million, up a couple of percentage points on 2002, but China produced 2.07 million, up a third. The other was that Toyota overtook Ford as the world's second-largest car maker.

Neither event was remarkable in itself. On some calculations, China is the world's second-largest economy and is the fastest-growing large car market. So it is unsurprising that it should pass an increasingly car-unfriendly Britain. And Toyota has been building very good cars for at least two decades, while Ford's record has been uneven.

But you see the connection. The Japanese revolutionised the business, bringing reliability that US and European firms have yet to reach. China has yet to begin exporting cars in significant numbers. But it will, in the next 10 years, be a market of 10 million, the largest in the world.

At the moment Western firms see it as the great new frontier: the most important growth market in the world. So they are plunging into ventures to produce there and accepting the ignominy of seeing their designs copied by local producers.

China will, however, not just catch up but, if it follows the Japanese pattern, become an even more effective competitor. It will become the greatest car producer on the planet. You don't believe it? Remember how Japan built its exports on a growing home market and how its early efforts were dismissed. In 1979 Business Week judged: "The Japanese auto industry isn't likely to carve a big slice of the US market."

Sorry about that, Mr Ford. So what all does it mean for British business?

One, we should make sure that Britain gets the first assembly plant in Europe by a Chinese manufacturer, just as we got Nissan to set up the first Japanese plant, in Sunderland. The UK is the best market in Europe for Japanese cars; why should it not be the best for Chinese?

Two, the design talent in Britain should cultivate China as a new market. That is where the big money will be 10 years from now.

Three, Rover needs the right Chinese partner. This is perhaps the only long-term way of preserving the company and the jobs associated with it.

Rover has been clever in adapting an Indian small car, the Tata Indica, and turning it into its new CityRover. But the Indian motor industry is much smaller than the Chinese and so is less likely to generate the resources to create world-beaters.

And British car buyers? I shall watch eagerly for the first Chinese car on the UK market. My guess is that this is not more than three years away -- and it may well be called a Rover. That would save them the cost and time to build a brand image. Britain, too, would be the natural entry point for Chinese products for we seem to be less snooty about little-known imports than our continental cousins.

But whatever badge the first Chinese car comes under, my bet is it will be good enough and cheap enough to make the rest of the industry tremble.