None of this, however, explains why, when confronted with a lack of reliable information, most foreign companies jumped into China investments anyway. The gap between the little that was known in the 1990s and the vast amount that was expected of the market cannot be put down to bad mathematics and poor research alone. A real understanding of what happened in the China gold rush is arrived at not only through rational analysis but through a psychological leap into the realm of the China Dream: foreign companies invested in China because they wanted to believe that dreams come true.
The story of automotive investment is instructive. In other developing countries, the experience of multinational automotive companies is that private car ownership takes off when economies reach a level of around US$6,000 per capita. At such a point the pooled resources of families make car ownership an affordable proposition.
In the China of the mid-1990s, even if the economy were able to grow at 10 per cent a year indefinitely, and without devaluations, the country’s gross national product per capita was not due to reach US$6,000 until some time after 2020. Yet in 1994, when annual sales of domestically made cars were 250,000, international car makers were planning to build 2.7m units of annual manufacturing capacity. General Motors alone wanted the capability to build 900,000 cars across three plants – one and a half times total sales in 2000. As it was, Chinese fears of losing the vast potential market to foreign interests meant that only 1.3m units of capacity was licensed, and at the end of the decade overcapacity stood at a mere 100 per cent.
There was, and is, no logical way to derive from the level of car sales in the mid 1990s, or from China’s economic growth rate, the projection of a market of 1m-3m vehicles a year that both the government and international automakers forecast for 2000. A report in China Daily in 1996 noted that there were only 50,000 licensed private cars in the country since almost all were bought by government units.