The 21st Century Business Herald on Wednesday (January 20) said that VW and local partner FAW would construct a manufacturing site in Guangzhou, a southern port city on the Pearl River Delta in the industrial heart of China and close to Hong Kong.

The facility will produce at least 200,000 units per year initially and mark the entry of VW's Spanish value brand Seat to China, the newspaper cited an unnamed executive from VW's China operations as saying, although Seat denied this.

Although the German carmaker controls a larger share of the Chinese passenger car market than any other rival, it is under-proportionately present in southern China, where younger, increasingly more affluent car buyers prefer Japanese models.

"An increase in sales volumes in the provinces of southern China is part of the country-wide expansion strategy of the group. We will not comment on speculation over an additional manufacturing site in the South of China," Volkswagen said in a statement emailed from the carmaker's German headquarters.

Winfried Vahland, president and CEO of Volkswagen's China operations, has also pledged to more than triple its sales in south China by 2018 as a main driver for its strategy to double sales in the country to 2 million units by that time.

VW late last year unveiled a plan to invest 4 billion euros ($5.71 billion) in China by 2011 to expand its production capacity and shore up its R&D.

Pricewaterhouse Coopers expects the Chinese car market to grow 10 percent this year after a red-hot 2009, when it overtook the United States as the world's largest market. Sales jumped 48 percent due in part to government incentives like a cut in sales tax.

Although launching models such as the popular Seat Ibiza might add snazzier models to the group's more conservatively styled VW and Skoda cars, the marque no longer aims to follow through on plans by former Seat head Erich Schmitt to head east.

"Seat denies reports that the brand's models will be introduced into the Chinese market, neither is there any truth to speculation over a local production base in China," it said in a statement.

"The Spanish brand is fully concentrating on its home plant in Martorell (near Barcelona) and the retail markets in Europe in order to reach full capacity utilisation in the future."

Volkswagen and FAW Group already operate four plants in the cities of Shanghai, Nanjing, Changchun and Chengdu, making Jetta, Bora, Golf, Sagitar and Audi models among others. The automaker also operates a joint venture with SAIC Motor Corp making Passat, Santana, Polo and Skoda models.

VW sold 1.4 million cars in mainland China and Hong Kong in 2009, up 36.7 percent from a year earlier.

Arch-rival General Motors sold 1.83 million vehicles in the country last year, up 66.9 percent. The total tally, however, included 1.06 million relatively cheaper mini vans and pick-up trucks made at its venture in south China.