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China Automotive Systems, which earlier this week reported Q1 operating profit up 98%, on Friday said subsidiary Jingzhou Henglong Automotive Parts has a deal with FAW Volkswagen to supply power steering systems.

The agreement will commence immediately, with a term of one year and an option to extend for a further two years. The systems will be installed in VW Jetta and Audi vehicles in China. The first shipment will be made on 21 May. Other terms of the contract were not disclosed.

With this supply agreement, China Automotive Systems has entered into Volkswagen’s global sourcing system.

According to the China Association of Automobile Manufacturers, two key Volkswagen joint ventures in China, FAW Volkswagen and Shanghai Volkswagen, collectively produced and sold more than 680,000 passenger cars in China in 2006. FAW Volkswagen, the number one passenger car producer in China, experienced a robust 40% year over year unit sales growth in 2006. In the first quarter of 2007, FAW Volkswagen’s production and sales unit growth accelerated to 55% up from same period in 2006.

“This agreement represents a major step towards our goal of becoming the number one producer in the power steering market in China. After a decade long effort of improving our product R&D, quality control, production scale and after-sale customer services, we have finally become a tier one supplier to one of the largest global automakers,” said Hanlin Chen, chairman and chief executive officer of China Automotive Systems.

“In addition, we continue to improve product quality and ramp up production capacity to prepare for potential opportunities outside of China.”