Volkswagen hikes China investments by 1.6b euros

(Agencies)
Updated: 2010-04-27 09:37

Volkswagen AG, Europe's biggest automaker, will build two plants in China as part of a 1.6 billion euro ($2.2 billion) expansion plan to capture growth in the world's most dynamic auto market.

The German carmaker, which operates in China through two joint ventures, reiterated its long-term goal to sell 2 million vehicles a year in the world's biggest car market.

"Growth in China has surpassed all expectations," Chief Executive Martin Winterkorn said in a statement on Monday.

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Volkswagen shares were up 1.3 percent at 74.43 euros by 0915 GMT, while the STOXX Europe 600 Automobiles & Parts index .SXAP was 0.5 percent higher.

The 1.6 billion euros brings Volkswagen's total investment plans for the Chinese market to 6 billion euros. Last week, a top manager told Reuters the company had hiked its investment in China but declined to say by how much.

Volkswagen said it plans to use the money to build two production sites and to launch seven new or revamped models this year in China.

China is on track to overtake Germany as the group's largest single market this year.

China's car sales zoomed up nearly 50 percent last year, defying falling sales in the rest of the world, thanks in part to a series of government measures designed to stimulate spending during the global downturn.

Overall Chinese auto sales are set to rise faster than expected this year, with some industry insiders now forecasting a 20 percent increase.

Other automakers are also racing to increase capacity as China's market shows no signs of slowing yet.

Beijing Automotive Industry Holding Corp (BAIC), China's No 5 automaker, and partner Hyundai Motor, will build their third manufacturing plant in China, BAIC's President Wang Dazong said at an industry forum last week.

Since VW's Chinese activities are operated through two separate joint ventures with Shanghai Automotive (SAIC) and FAW Group, its earnings there are booked as a share of profit for equity-accounted investments.