Volkswagen plans to spend 2 billion euros, or $2.7 billion, to build two new factories in China this year, Bloomberg News reported.
"China has become our largest and most important market," VW CEO Martin Winterkorn said in a statement quoted by Bloomberg News. "To satisfy the demands of our customers in the country, we are engaging in a further substantial expansion of our capacities in China together with our Chinese partner FAW Volkswagen."
VW will invest $2.7 billion to build the new plants in Qingdao and Tianjin, which are both coastal cities. The auto group, which is based in Wolfsburg, Germany, and owns 12 car brands, delivered around 1.51 million vehicles in China in the first five months of this year, an 18 percent increase year-over-year.
Volkswagen plans to become the world's biggest automaker, surpassing Toyota by 2018.
Fellow German carmaker Daimler aims to overtake competitors Audi and BMW in China sales this year, Reuters reported.
"We are learning to understand China better and using that in our product development. We were a bit behind in that area," said Hubertus Troska, the management board member who heads Daimler's China business, as quoted by the newspaper Frankfurter Allgemeine Zeitung.
Demand for luxury cars in China is predicted to pass up that of the U.S. within the decade.
Daimler plans to open a new design studio in Beijing this summer, and the automaker will double its engineers in China during the next two years, which would bring the number to 460 engineers.
The brand is also looking to launch the DENZA electric car at the end of this year. Earlier planned for a September release, the electric vehicle is a local Chinese brand developed with Chinese partner BYD.
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