Yet the prospects for foreign investors may not be as healthy as they appear, for several reasons. First, volumes are still trivial by global standards. The number of cars sold in China last year is equal to just three weeks of sales in the United States. Second, with so much new competition, it is becoming ever harder for car makers to achieve economies of scale. With every new model that is introduced, the volumes per platform - the basic structure of a car - go down, not up. This is even more of a problem for the parts makers, where scale requirements are even higher.

Third, as prices fall, margins are also dropping, making returns on any investment harder. Even the notion of making China an export hub and shipping cars and trucks across the globe is fanciful. The business is hugely capital-intensive - labour rates are comparatively unimportant to the industry, despite commonly perceived wisdom. Moreover, there are two other very good reasons why foreign firms should tread carefully. First, there are the government's plans for the industry. Second, they should remember what has happened in a host of other industrial sectors in the last 10 years.

The government has a very clear policy for the car sector, which it rightly sees as a future 'pillar-industry'. This plan is explicit, highly detailed and has been at the core of the country's aims for almost a decade. It specifies the pace of technological development for the industry, the competitive structure (including the numbers of companies in each product segment) and the types of vehicles that will be needed, and when. It seeks to build an industry around two or three scale-driven firms, the identities of which are becoming increasingly obvious - First Automobile Works, the Shanghai Automotive Industry Corporation and Dong Feng.

Moreover, the industry's progress is specifically linked to the nation's wider plans - urbanisation objectives, the city construction agenda, future tax revenue assumptions, environmental controls and, most critically, carefully managing foreign oil dependence. Crucially, it seeks to build an independent domestic car industry, not one overrun by foreigners.

Global car makers would, therefore, do well to look at the history of investors in other big industrial sectors in the last 10 years, like telecoms or pharmaceuticals. In both cases - and in many others - the authorities liberalised the markets gradually as demand began to take off, invited foreign firms to participate, waited until there were sufficient economies of scale for a domestic sector to prosper and then threw the foreigners out. Industries that were once dominated by outsiders are now almost entirely provided for by wholly owned local firms with their own technology.

Fanning the flames of foreign excitement about China's car industry and its growth prospects is, ironically, mostly done by those on the outside. Yet it is exactly what the authorities on the inside need. As the market hots up and inward investment grows, it is forcing the indigenous domestic firms to accelerate their pace of development, while the foreigners provide much of the finance and know-how.

Are all the global firms wasting their time (and money)? Not necessarily. There are other lessons to be learned from the investments of the past. The most critical of which is that brands count. A powerful brand - like Mercedes or BMW, for example, will always find value in a market like China. For those manufacturers, the prospects are likely to be very good. Another winner is technology leadership - to continuously push the frontiers of technology, to lead where Chinese firms follow. Again, though, it is a strategy for the few.

Some car makers will win in China, and the country and the industry have been gripped by an auto mania for good reason. But it is also blinding most companies to the realities. Few outsiders are likely to win in the long term.

Graeme Maxton is managing director of UK consulting firm autopolis in Singapore