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Volkswagen AG and China's First Automotive Works (FAW), the country's largest automaker, will jointly build a car manufacturing plant in southwest China's Chengdu city to grab local market share, the 21st Century Business Herald reported, citing company officials.

The newspaper quoted an unnamed FAW official as saying that the joint venture project has won approval from the State-owned Assets Supervision and Administration Commission.

The plant has a designed annual capacity of 100,000 cars and is expected to start production in May 2007, the report said.

But it did not say which brands the Chengdu plant will make or give any financial details.

Citing another unnamed official from local government, the newspaper said VW global procurement official will attend an auto show at Chongqing, a nearby city to Chengdu, to choose auto-parts makers to serve the plant.

The joint venture is expected to give Volkswagen a foot in inland China, giving the company a strategic advantage as it can supply local markets more easily.

Volkswagen currently has two joint ventures in China, FAW-VW in northeast China's ChangChun province and Shanghai-VW in Shanghai.

It is too far to transport vehicles to central and western China from the two joint ventures and costs are too high.

Volkswagen saw its China sales down six pct last year to a total of 655,000 units.

Its chief executive Bernd Pischetsrieder said earlier that the decline in the company's car sales in China last year was largely attributable to the aggressive sales incentives of other vehicle manufacturers.