Volkswagen will next week start building a $US240 million car plant in Shanghai that will focus on exports, with initial capacity to make 150,000 cars a year, a senior executive at its venture in the city told Reuters on Wednesday.

Shanghai Volkswagen technical executive director Bernd Engelstadter told the news agency the plant should be completed in two to three years and would underpin the company’s export drive.

Reuters noted this would mark the first major export base for a western carmaker in China where labour leaders and industry executives worry that exports, where multinationals are spending about $13 billion on new capacity, would pressure global car prices.

Volkswagen began trial exports of a few hundred Chinese-built right hand drive Polo sedans to Australia earlier this year and has just announced plans for two new plants to build engines, some of which will be for exported cars.

Toyota has set up an engine JV due to start production in 2005 that will export some motors and a new Honda JV car plant with Dongfeng is also set to ship some of its SUV output to other countries once it is completed.