Volkswagen's new target represents a dramatic rise compared to its previously stated goal of building one million cars in China by 2007. 

It also signals foreign carmakers confidence in the blistering pace of growth in the world's hottest auto market. 

Analysts forecast China will surpass Germany as the world's third largest producer of autos by the end of 2004, with 5.0 to 5.3 million vehicles rolling off mainland assembly lines. 

"China's 2004 auto output is likely to hit 5.3 million units, with car output (alone) up nearly 30%  at around 2.5 million units," said Xu Xiang, an auto analyst with Southern Securities. 

Higher production

Volkswagen produced 298,000
cars last year

In the first 11 months of last year China built four million vehicles and sold 3.91 million of them. Full-year 2003 production is expected to hit 4.4 million units compared with 3.25 million a year earlier, analysts said. 

At Volkswagen, both its China joint ventures, First Automotive Works (FAW) VW and Shanghai Volkswagen Automotive, sold 694,000 cars in China last year, up from 510,000 in 2002. 

"We expect FAW VW (alone) to produce one million cars by 2007 or 2008," the China Daily quoted Folker Weissgerber, a Volkswagen Group board member, as saying. 

FAW VW, established in 1991, produced 298,000 cars last year, an increase of 55%  from a year before. The strong sales helped it remain the second-largest Sino-foreign carmaker, after Volkswagen's other joint venture Shanghai Volkswagen, which reported record sales of 396,000 vehicles in 2003, up 32% . 

Between them they hold about 35% of China's passenger vehicle market, while US-based General Motors controls about 10%  after its sales last year rose 46.4 percent to a record 386,710 vehicles. 

Roadblock

"China's 2004 auto output is likely to hit 5.3 million units, with car output (alone) up nearly 30%  at around 2.5 million units"

  Xu Xiang, an auto analyst

Insufficient production capacity is one of the biggest roadblocks in further expansion this year, the newspaper said, citing unnamed FAW VW officials. 

Many industry experts, however, have warned to the contrary - that despite expected continued growth carmakers are overconfident on production targets and are at fault for causing the market to overheat. 

"Rising costs on surging steel prices and a relatively saturated auto market in big cities like Beijing and Guangzhou will (slow) the development pace of China's auto market this year and increase pressure on inventories," said Dong Jianhua, an auto analyst at Southwest Securities. 

Capacity

FAW VW's annual capacity of about 300,000 units is set for expansion this year, with a second plant under construction expected to add another 330,000 units. 

Separately, Dongfeng Peugeot Citroen Automobile, a joint venture between France's PSA Peugeot Citroen and China's Dongfeng Motor Corp, sold 103,000 vehicles in 2003, racking up sales revenue of 11.5 billion yuan (1.38 billion dollars), the Xinhua news agency reported.