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Volkswagen steps up southern China push with Guangdong expansion

By Samuel Shen and Norihiko Shirouzu

FOSHAN, China (Reuters) - Volkswagen AG plans to double production capacity at a newly opened factory in the southern Chinese city of Foshan, its China chief executive said on Wednesday, as Europe's No.1 carmaker ramps up efforts to grab more market share in a region dominated by Japanese rivals.

Volkswagen officially opened the plant in Foshan city in southern Guangdong province, which it operates under a venture with state-owned automotive enterprise FAW Group Corp <000800.SZ>. The plant, capable of producing 300,000 vehicles a year, recently started to manufacture the redesigned Volkswagen Golf car. Volkswagen's decision to expand the plant confirmed an earlier report by Reuters.

Volkswagen officials said the German automaker, one of the first global automakers to establish car production facilities in China during the 1980s, is today evolving its China operations China by leading a "Go South" strategy, as well as a "Go West" strategy.

"Foshan is part of our 'Go South' strategy," Volkswagen's China CEO Jochem Heizmann told a small group of reporters in Foshan on Wednesday. "Two years ago, we launched our 'Go West' strategy, building a plant in Chengdu" and now Volkswagen is trying to repeat the feat through building a plant in Foshan and expanding it quickly, he said.

Heizmann also said Volkswagen was in discussions with FAW to raise its stake in their joint venture to 50 percent from 40 percent.

"We're discussing very intensively how to expand our strategic cooperation between VW and FAW on a long term," he said. One subject in their discussions is "the possibility to increase our shares."

The planned production expansion at Foshan stems from an agreement signed in May by the two companies, which aims to boost the plant's capacity to 600,000 vehicles a year with an investment of 15.3 billion yuan ($2.50 billion).

Volkswagen, which also sells the Audi, Skoda, Lamborghini and Bentley brands in China, is set to start producing the Audi A3 hatchback in early 2014 at the new plant, according to Heizmann.

Volkswagen has deepened its presence in the region since the 2009 launch of the "Go South" strategy, through which the carmaker has also increased the number of retail stores in the area. Its efforts have focused on Guangdong, a large auto-buying province where the influence of Japanese carmakers is the strongest in China.

In a sign that Volkswagen's efforts are paying off, the market share of the Volkswagen brand, excluding the Audi, Skoda, Lamborghini and Bentley brands that the company also markets, climbed to 13.6 percent in southern China in the first half of this year from 11.9 percent a year earlier, according to consulting firm LMC Automotive.

By contrast, Japanese brands - including Toyota Motor Corp <7203.T>, Honda Motor Co Ltd <7267.T> and Nissan Motor Co Ltd <7201.T> - have seen their combined market share shrink to 23.9 percent from 29.8 percent during the same period.

The expansion in southern China is part of Volkswagen's plan to boost the group's annual manufacturing capacity in the country to 4 million vehicles by 2018. Volkswagen increased its China sales by 18.5 percent last year to 2.6 million vehicles.

(Additional reporting by Andreas Cremer; Editing by Ryan Woo and Matt Driskill)

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