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The Volkswagen Group says it is planning to invest a total of four billion euros in new products and the expansion of production capacities in China. The investments are to be financed from the cash flow of the Chinese joint venture companies.

At the Nanjing and Chengdu plants, production is to be boosted to between 300,000 and 350,000 units in each case by 2012.

These investment plans were approved today by the Supervisory Board.

“For the Volkswagen Group, China is one of the most important markets in the world We are already well-positioned there with a broad product portfolio,” said Prof. Dr. Martin Winterkorn, VW Group CEO and Chairman.

“Demand for our models is growing so dramatically that our capacities in China are no longer sufficient. Our investment decision has laid the foundations for continuing the Group’s success in China in the future,” Winterkorn added.

“In China, we will see clear double-digit growth in 2009 and expect to remain the market leader in the future. Volkswagen Group China is well on the way to reaching the target of doubling sales to two million vehicles laid down in our Strategy 2018 earlier than planned,” commented Dr. Winfried Vahland, President and CEO of Volkswagen Group China.

The planned investment of a total of 1.3 billion euros in new products and capacity expansion at Nanjing and Chengdu will include additional production facilities with body, paint and assembly shops. From 2012, three new models are set to leave the production lines at Nanjing and two at Chengdu.

This year, three new VW Group models have been launched on the Chinese market, the Volkswagen Golf, the Volkswagen Passat New Lingyu and the Škoda Superb.

Currently, models manufactured by the Volkswagen Group in China include the Volkswagen Polo, Lavida, Santana, Santana Vista, Passat New Lingyu, Touran, Golf, New Bora, Jetta, Sagitar and Magotan, as well as the Škoda Fabia, Octavia and Superb and the Audi A4L and A6L.

As part of Volkswagen’s Strategy 2018, the German car maker aims to outpace Toyota as the world’s biggest auto maker.

The China investment is part of the automaker’s plan to achieve sales of more than 2m units per annum in the Chinese market by 2018.

IHS Global Insight expects the overall Chinese market to increase by more than 25% in 2009 to 11.8m units.

IHS Global Insight noted that although Volkswagen will have the production capacity necessary to provide the volumes to meet its 2018 sales target, the withdrawal of market incentives, competition from rival automakers, or local and global economic troubles could pose obstacles.