Construction started in Changchun Wednesday on a Sino-German car platform component joint venture between German auto giant Volkswagen and the First Automotive Works Corp (FAW).

Total investment in Volkswagen FAW Platform Co Ltd, based in the capital city of Northeast China's Jilin Province, will reach 1.42 billion yuan (US$171 million), according to a Volkswagen statement.

In what is the third joint venture between FAW and Volkswagen, which will start producing axle assemblies in 2005, the German automaker will have a 60 percent stake, with FAW - China's biggest state-owned automaker - holding the remaining 40 percent.

The joint venture is part of Volkswagen's plans to increase its investment in China with local partners by 5.3 billion euros (US$6.5 billion) by 2008 in order to maintain the firm's leading role in the world's fastest-growing car market.

The two automakers now have a joint venture in Changchun, named FAW VW, producing the Volkswagen Jetta, Bora and Golf, and Audi A6 and A4.

Volkswagen, FAW and Shanghai Automotive Industry Corp (SAIC) also operate a transmission joint venture in Shanghai.

Folker Weissgerber, a Volkswagen board member, said that the components joint venture in Changchun will supply the new models on its PQ35 platform, which are to be introduced into FAW VW and the other car joint venture with SAIC in Shanghai.

FAW VW will produce the Caddy wagon at the beginning of next year and the new-generation Bora later on.

The Shanghai joint venture, which is producing the Santana, Passat, Polo and Gol, will make the Touran multi-purpose vehicle this year.

Volkswagen said that it has also submitted an application to the Chinese Government to establish an engine joint venture with FAW in Dalian, a port city in Northeast China's Liaoning Province.

Volkswagen said that it had signed a new technical transfer agreement with FAW to introduce new models into FAW VW.

Apart from the Caddy, FAW VW will produce Volkswagen's light-duty buses and vans at FAW's plant in Jilin, another city in Jilin Province.

"The establishment of the Volkswagen FAW Platform Co Ltd is part of our efforts to increase local content in order to cut costs and improve our competitiveness in China," Weissgerber said.

Analysts say Volkswagen's move is driven by the strong euro and regulations concerning key components imports in China's newly launched auto policy.

The production cost pressures on Volkswagen and other European automakers operating in China have increased as a result of the strong euro.

The strong euro increased FAW VW's production costs by more than 2 billion yuan (US$240.9 million) last year, company executives said.

In line with China's commitments to the World Trade Organization (WTO), the nation's new auto policy, issued last month, ended the requirement that the local content rate of all cars made in China must start with at least 40 percent and increase to 60 percent in a year and to 80 percent in two years.

(China Daily July 15, 2004)