Volvo will build the S40 saloon at the Chang’an Ford assembly plant joint venture in Chongqing, China.

The move makes sense as the S40 shares its platform with the Ford Focus and Mazda 3 which are already being assembled in the plant.

According to Reuters, Volvo said it could reach its Chinese manufacturing target of 10,000 cars a year in 2007, and was working with a number of Changan Ford’s local suppliers to meet the government’s local content requirements and the company’s quality standards.

“We are, after working with (Changan Ford) on this project for over a year, convinced that their factory, working together with our own experts, can produce the quality Volvo requires,” Volvo Car Corporation president and CEO Fredrik Arp told Reuters at a press conference in Beijing.

“At 10,000 units we will be making money,” Alexander Klose, Volvo’s Asia Pacific head told Reuters.

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The news agency noted that Volvo lags entrenched rivals such as Volkswagen’s Audi , which has been making expensive cars for years for an increasingly cash-rich and style-conscious Chinese middle class.

Volvo’s unit sales in China almost doubled in 2005 to over 4,800 units, and could more than double this year to 10,000. The company also sees significant growth for the foreseeable future, the report said.

“There is as good possibility it could double again next year,” Klose told Reuters.

Nonetheless, the news agency noted, even with its recent strong growth in China sales, Volvo still lags behind global rivals.

BMW set up its China factory in 2003 and DaimlerChrysler is building a plant in Beijing that will be able to build 25,000 Mercedes-Benz cars annually.

Chinese car sales grew 15% in 2004, after almost doubling in 2003, and analysts expect growth of 10 to 15% this year, Reuters said.

“China will probably be the most important car market within five to 10 years in the world,” Arp told the news agency. “To be an importer only is not a long-term strategy.”

Rising competition is also eating into profits, turning a once lucrative market into one where high volume replaces high profits.

“The profit margins in this market are not outstanding in any direction,” Klose reportedly said, adding: “China is becoming a regular market.”

Reuters said that, after reviewing the China manufacturing operations at the end of next year, Volvo will reassess the market and determine if expanding output – which could include other models besides the S40 – is justified.

“We will manufacture this car. We’ll see how it works. We’ll see how we are doing next year,” Klose told the news agency.

Earlier reports said Volvo plans to introduce seven new car models in China between 2006 and 2009, including the C70 metal-roof coupe/convertible and the new entry-level C30 three-door hatchback and S80 luxury saloon.

The new S80 was launched at the Geneva motor show this month and the C30, shown recently in ‘concept’ form at motor shows, is expected to go into production later this year.