2010-06-10 11:09

HELSINKI - Volkswagen AG (VW), Europe's largest carmaker, will spend 520 million euros ($622 million) to add a 10th plant in China as the country's car demand booms.

The new factory in Foshan, Guangdong province, will assemble 300,000 vehicles annually and open in 2013, Wolfsburg, Germany-based VW said on Wednesday.

The plant is part of VW's plan to double production capacity in China to 3 million vehicles within four years as the carmaker invests 6 billion euros in the country.

Automakers are expanding in China, which surpassed the United States as the largest auto market last year.

"In the mass segment you have to do the value creation inside China," said Daniel Schwarz, an analyst at Commerzbank AG in Frankfurt with a "buy" recommendation on VW shares. "Volkswagen is trying to catch up in the south where they currently aren't as strong as further north."

Daimler AG, the world's second-largest luxury carmaker, announced plans last month to build a Chinese engine factory as part of a 3 billion-euro investment there.

Nissan Motor Co is enlarging its plant in Guangdong and aims to build as many as 600,000 vehicles there by 2012, from 430,000 units currently, the company said in April.

China's passenger car deliveries in May gained 26 percent from a year earlier to 1.04 million units, the China Association of Automobile Manufacturers said on Tuesday. Five-month sales rose 55 percent to 5.68 million units.

Honda strike

Volkswagen will build the Foshan factory with partner FAW-Volkswagen Automotive, the joint venture's first factory in southern China, and finance the project using FAW cash.

VW also works in China with SAIC Motor Corp. Volkswagen's decision to build a factory in Guangdong may put pressure on the region's already tight labor market.

Honda Motor Co's production in China was halted on Wednesday by a strike for the second time in less than a month, as workers at an affiliated parts supplier in Guangdong walked out demanding higher pay.

An earlier strike by workers at a wholly owned parts supplier in Foshan shut Honda's four Chinese car plants until Honda raised their salaries.

The disruptions reflect growing pressure for higher pay in southern China.