THE industry saw it coming, but it is a symbolic milestone nonetheless. Figures released this week show that General Motors has been overtaken by its Japanese rival, Toyota, which became the world's biggest carmaker in the first three months of this year, with global sales of 2.35m vehicles to GM's 2.26m. As it restructures itself, America's top carmaker has wisely cut back on discounted sales to car-rental firms, boosting revenue per unit but reducing overall sales. Slipping from first place, where GM has been since 1931 apart from a few strike-related blips, will dent the car giant's pride. But the good news is that GM's American business seems to be on the mend—and it is on top in China, the world's most promising car market.

Sales of cars and light trucks in China reached 7.2m in 2006, making it the second-largest national market behind America, and the fastest-growing. GM's brightest hopes now lie half a world away from Detroit in places like the southern Chinese city of Liuzhou, set against a striking landscape of steep limestone karsts. The factory operated in Liuzhou by SGMW, GM's joint venture with two Chinese firms, Wuling and Shanghai Automotive Industry Corporation (SAIC), is bright, clean and almost as efficient as any car-assembly line in the world. Each day it turns out more than 1,000 Chevrolet minicars and Wuling minivans, not much bigger than a Mini Cooper and starting at $3,500. Margins are slim but labour costs are only around $100 per vehicle, says Tom Drumgoole, SGMW's vice-president. SGMW's sales grew 36% to 460,000 vehicles last year, outpacing the wider market.

GM also has a separate joint-venture with SAIC, called SGM. Its prospects seemed dim when it was set up in 1997: the market was a tenth of its size today and was dominated by commercial vehicles, yet the Chinese government decreed that SGM would make cars, to be sold under the then-fading Buick brand. Last year, however, SGM sold more Buicks in China than GM did in America. The gap is likely to widen now that Buick is China's top car brand, says Rick Wagoner, GM's boss. SGM has doubled the size of its Shanghai plant to meet demand and will soon add a third daily shift to increase production.

Another of GM's Chinese ventures is PATAC, a sophisticated design and engineering centre in Shanghai operated with SAIC. This was where they designed the Buick Riviera, a sleek coupé that made its debut at this month's Shanghai Motor Show. Although it is just a concept car, its design is likely to influence new Buicks in both China and America, hints Ed Welburn, GM's design chief.

One danger for GM is that SAIC is starting to introduce new vehicles under its own brands, such as Roewe, outside the SGM joint venture. The Roewe 750 saloon has been well received, and at the Shanghai show SAIC displayed a prototype of the Roewe W2, a mid-market family car. It will be some time before SAIC's own brands are a match for Buick, but through its Chinese partnership GM is “supplying bullets to the enemy,” says Joe Phillippi, an analyst at AutoTrends Consulting in New Jersey. For the time being, however, China remains GM's most promising market, and one that might even enable it eventually to regain the lead over Toyota, which made a slow start in the country.