The new Volkswagen (VW) car factory is to be set up in the provincial capital Urumqi with a production capacity of up to 50,000 vehicles per year, German news agency DPA said Wednesday.
Funding for the project worth 2 billion yuan (240 million euros) would be provided by a joint venture between VW and Chinese automaker Shanghai Automotive Industry Corporation (SAIC), the agency said.
In addition, news agency Reuters quoted a German government source as saying that the agreement for the plant would be signed in Germany on Monday in the presence of German Chancellor Angela Merkel and Chinese Premier Wen Jiabao.
The Urumqi plant, which is scheduled to start production in 2013, will be Volkswagen's fifth car factory in China with an additional four plants on the drawing board. The German auto giant already has six component factories in the Asian country.
In China, Volkswagen reached a new sales record of 633,000 vehicles in the first quarter of 2012, and has announced investments in China to the tune of 14 billion euros until 2016.
Uighur trouble spot
According to Tianshan Net - a local website based in Xinjiang province - Volkswagen Chairman Martin Winterkorn visited Urumqi last week for talks with regional leaders.
Winterkorn said the new plant was part of VW's strategy to expand into China's less developed inland areas.
"Shanghai Volkswagen plans to manufacture car models with the most advanced technology and based on the latest platforms in the Xinjiang project," Tianshan quoted him as saying last week.
Volkswagen is the first international auto maker to venture out into China's far west - a region troubled with ethnic tension between minority Uighurs and the Chinese majority population.
In 2009, some 200 people died in clashes unleashed by the Muslim separatist Uighurs in protest at what they called political and cultural oppression from China's Communist government.
uhe/nk (dpa, Reuters)