Volkswagen will produce more engines and transmissions in China as part of its global expansion strategy to meet rising demand for fuel efficient vehicles.

The company – China’s largest foreign car manufacturer – will manufacture its TSI engines and DSG gearboxes in an attempt to reduce the fuel consumption of its locally made cars by 20 per cent by 2010.

Volkswagen China President and CEO, Winfried Vahland, is confident that the combination of its turbocharged direct-injection petrol engines and double-clutch automatic gearboxes will deliver on those goals.

“If you want to become number one in the market, you have to be number one in technology.

“We are confident we will achieve the target by next year,” he said, adding that VW had already reduced its fuel consumption by 17 per cent in the past two years.

VW China will also build a $1 billion plant in Dalian in the country’s northeast to produce 300,000 DSG gearboxes in 2010.

It will be the sister factory to the engine plant already in Dalian, which will soon increase capacity to make 30,000 1.4, 1.6 and 2.0-litre engines.

The announcement comes less than two weeks after it was revealed that VW will build a plant in the south of China, in addition to current plans in Shanghai and in the northeastern city Changchun.

VW is not yet well established in South China, an area which accounts for 35 per cent of China’s new car sales, of which VW has just a 5 per cent share.

Throughout the rest of China however, VW is booming, with sales up 35 per cent through the first nine months of 2009, breaking the one million mark in September.

In February, VW announced its ambitions to sell two million vehicles in China by 2018 and the latest developments will go a long way to achieving that goal.

by Tim Beissmann