The biggest maker in China plans to get bigger.

The Volkswagen Group will build a new vehicle production plant in Jiangsu Province, China. The contracts were signed today by Prof. Dr. Jochem Heizmann, Member of the Board of Management of Volkswagen Aktiengesellschaft, and Dr. Winfried Vahland, President and CEO of Volkswagen Group China, together with representatives of Shanghai Volkswagen.

The plant in Yizheng, Eastern China, will start operating in 2013 and has a maximum annual production capacity of 300,000 vehicles.

VW is already the largest maker in China, and it will double production capacity there to 3 million vehicles by the end of 2014.

“China is one of the most important automotive markets of the future and a dynamic growth driver for the Volkswagen Group”, Heizmann said at the signing ceremony. “Together with our Chinese partners we plan to double our production capacity to three million vehicles by 2013/14.”

Growth!

“With more than 950,000 vehicles delivered in the first half of 2010, Volkswagen Group China has exceeded deliveries in the record year of 2009 by 45.7 percent”, Vahland added. “This strong performance further confirms the success of our young and efficient model range. The new plant in Yizheng makes sure we will be able to meet growing demand from our Chinese customers in future, too.”

The Chinese auto market – now and for the foreseeable future the world’s largest – prompted VW to add another €1.6 billion last April to its Chinese investment program,  for a total of €6 billion by 2012.

The investments are financed from the cash flow of existing VW Chinese joint ventures since Chinese industrial policy does not allow money made there to flow outside the country unless it is in the form of declared dividends. The U.S. of course lacks such a policy.

Some of the funds will be used to double local production capacities by 2014. Annual capacity at both the existing Nanjing and Chengdu plants will increase to 300,000 to 350,000 units. Two new factories will be built. The new plant in Yizheng will be joined by a FAW-Volkswagen production plant in Foshan, Southern China. (See Volkswagen to Build a New Plant in Southern China)

According to present plans, the Yizheng plant will begin producing up to 300,000 vehicles per year from 2013. It is a complete production facility with press shop, body shop, paint shop and assembly lines. Some 4,000 direct jobs will be created at the factory.

Volkswagen, of course, is one of the automotive pioneers in China starting with its first joint venture – Shanghai Volkswagen – in 1985. Today, the Volkswagen Group is the largest car manufacturer in China with nine plants. Employment will reach 50,000 this year. Some 20 models from the Group’s Volkswagen, Audi and Škoda brands are now produced locally and distributed throughout the country by more than 1,300 dealers. The Volkswagen Group plans to offer the first locally-produced electric cars in China by the end of 2013.