Volkswagen hasn't yet decided whether to build new factories in China or expand existing plants as it seeks to increase manufacturing in the world's fastest-growing car market, Bloomberg News reported.

VW aims to increase production capacity to a million vehicles a year by 2007 from 750,000 and to add even more after that, Volkswagen spokesman Hans-Peter Blechinger told the news agency.

Bloomberg News noted that China has passed the US as Volkswagen's second-largest market after Germany and the company is the leader in car sales with nearly 40% of the Chinese market. According to the news agency, supervisory board member Klaus Volkert told the Financial Times Deutschland that the company planned to build two new factories in China.

"We need new capacity and that can be new factories or expanding existing plants," Blechinger told Bloomberg News. "We haven't yet made the decision." Volkert was not immediately available for comment, Bloomberg News added.

Bloomberg reported that the paper said that VW plans to start building the Transporter van model in China, citing Zhang Suixin, Volkswagen's general manager in China.

Volkswagen will build the vans in cooperation with First Automotive Works Corp., one of its local partners, the paper said, according to Bloomberg News. FAW has suggested that a new factory for the van be built in Changchun, the paper reportedly added.