The company, German Volkswagen Group's joint venture in Shanghai, announced it would cut the Passat's price by between 20,000 yuan (US$2,400) to 30,000 yuan (US$3,600).

The 1.8 and 2.8-litre Passat currently retails between 209,500 yuan (US$25,300) and 329,000 yuan (US$39,750).

The move came after FAW VW, Volkswagen's other joint venture in Northeast China's Jilin Province, slashed around 10,000 yuan (US$1,200) of the price of its Bora on April 2, as part of a two-month nationwide promotion.

"The price cuts are a response to mounting competition from other new and cheaper models launched on the market during the first half of this year," said Jia Xinguang, an analyst with the China National Automotive Industry Consulting and Development Corp.

These new and cheaper models include the Accord from Guangzhou Honda, the Regal from Shanghai General Motors and the Lioncel released by Southeast Motors in East China's Fujian Province, Jia said.

The Passat's sales in Beijing started to nosedive in March due to the increased competition, according to FAW VW's dealers.

"There will be widespread consequences on the domestic car market if Volkswagen cuts prices of its other China-made models because it is the market leader in China," Jia told China Daily.

The German carmaker, which controls more than 40 percent of the market, also produces the Santana, Polo and Gol at Shanghai VW, and the Jetta, Audi A6 and A4 at FAW VW.

Volkswagen Group announced earlier that it aims to sell more than 600,000 cars in China this year, up from around 510,000 units last year.

Over the last week, many other carmakers based in China, including Nanjing Fiat and Dongfeng Peugeot Citroen, also cut their products' prices.

"More companies will join the price war this year to fight for a market share," said Qie Xiaogang, an official from the Beijing Asian Games Village Auto Exchange.

Qie predicted prices on the domestic market will drop by around 10 percent this year.

(China Daily April 15, 2003)