The investment is aimed at "enhancing the influence of the Red Flag brand," FAW Car said in a statement. The Red Flag -- China's first car – debuted in 1958 to shuttle senior government leaders.

The money will be used to construct a new welding production line and upgrade existing coating and assembly lines, and help the Red Flag better compete with the Audi A6 and Mercedes-Benz E-Class sedan. 

Following the investment, FAW hopes to increase annual production capacity of the Red Flag sedan to 30,000 units.

The Red Flag is a mid-sized sedan that was used by senior government leaders before China adopted market reforms and opened its economy in the late 1970s. 

Production of the Red Flag ended in 1981 but resumed in 1994. However, due to its aging model lineup and strong competition from international luxury brands such as Audi and BMW, sales of the Red Flag have remained sluggish.

In the first seven months of this year, only 150 Red Flags were produced and 146 of them were sold, according to Automotive Resources Asia, a J.D. Power unit.

Besides the Red Flag, FAW Car makes sedans under the Besturn brand, as well as the Mazda6 under a licensing agreement with Mazda Motor Corp.