VW said the money will be invested in new products and in increasing its manufacturing capacity, with production at its Nanjing plant set to increase to 300,000 units per year and at Chengdu to 350,000 by 2012.

"China is one of Volkswagen's most important markets worldwide," chief executive Martin Winterkorn said. "Demand for our products is growing so fast that our capacity is no longer sufficient."

"We expect to achieve double-digit growth in China this year and to secure our market leadership going forward," said Winfried Vahland, head of Volkswagen China.

He added that VW is "well on the way" to meeting its target of doubling its yearly vehicle sales in China to 2 million units per year sooner than its original 2018 target.

In the first six months of 2009, VW sold 650,000 vehicles in China, 22.7% more than in the year-earlier period.

Copyright Agence France-Presse, 2009