Volkswagen to invest €2 bn in two new plants in China

German carmaker Volkswagen AG, will invest €2 billion ($2.7 billion) to construct two new vehicle plants in China, the world's biggest auto market, as the two countries increase their bilateral trade and economic relations.

The announcement coincides German chancellor Angela Merkel's visit to China  - her seventh since taking office in 2005.

Wolfsburg, Germany-based Volkswagen, which outsold GM cars in China last year, plans to build the plants in the coastal cities of Qingdao and Tianjin.

Volkswagen, which owns a dozen automotive brands, counts China as its largest market. ''China has become our largest and most important market,'' chief executive Martin Winterkorn said in a statement.

''To satisfy the demands of our customers in the country, we are engaging in a further substantial expansion of our capacities in China together with our Chinese partner FAW Volkswagen.''

The China expansion will enable Volkswagen to overtake Toyota Motor Corp as the world's largest automaker by 2018.

Volkswagen sold about 1.51 million vehicles in China in the first five months of this year, an 18 per cent increase over the corresponding period of the previous year, and this could rise by a further 10 per cent, taking annual sales to more than 3.5 million vehicles, Winterkorn had said earlier.

Foreign automakers in China are adding capacity to meet the growing demand in the world's second-largest economy, where the number of licensed drivers is estimated to swell to 1 billion in the next 10 to 15 years.

Volkswagen had proposed to invest a total of  €18.2 billion in China by 2018 on capacity expansion and new models.

Meanwhile,on Sunday Chancellor Merkel visited Chengdu, the capital of China's south-western Sichuan province where more than 150 German companies operate.

China is Germany's second-largest export market outside Europe after the US.

It sold goods worth €67 billion to China last year, while imports from China topped €73 billion.

While Merkel's visit to China as chancellor may signal the growing importance of Chinese-German relations, German companies are reported to have complained of Chinese businesses stealing their technology and failing to pay on time.

During a brief meeting with Merkel on Sunday, before their official talks scheduled on Monday morning, Chinese premier Li Keqiang said the talks with Merkel will promote the two countries' mutual trust, deepen their cooperation in such areas as trade, finance, sustained development and culture, and strengthen their communication and coordination on major international and regional affairs.

She will then meet Chinese President Xi Jinping later on Monday evening.