Volkswagen AG, Europe's largest automaker, plans to build a new plant in China to drive up its production, but the central government may not give the approval as the country's auto industry is facing overcapacity risks.
The German firm will invest 10 billion yuan (US$1.6 billion) for a passenger car plant capable of producing 300,000 units annually in Changsha, Hunan Province, according to the Changsha National Economic & Technical Development Zone.
But it is not certain whether the central government will approve the plant as there are growing calls to curb the rising auto production amid cooling demand, warned Ye Sheng, auto research director at Ipsos.
The Hunan Research Academy of Environmental Sciences, a state-backed body, is seeking public feedback on the plant to advise the local government.
This year Volkswagen has broken ground on plants in Ningbo, Zhejiang Province, Urumqi, Xinjiang Autonomous Region. The Xinjiang plant may have been encouraged by China's top economic planner in a bid to bring investments to the country's underdeveloped western region, Ye said.
"But the one in Changsha is another story," Ye said. "It is not in an economic zone of strategic importance and there is not even a mature industrial chain of auto parts and logistics."
If the new plant gets the green light, it will add over 10 percent to the annual capacity of around 2.38 million vehicles built by Volkswagen and its Chinese partners SAIC Motor Corp and FAW Group Corp.
Volkswagen said earlier this year it aims to invest 14 billion euros (US$18 billion) in its output in China, the world's largest auto market, by 2016.
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Volkswagen AG, Europe's largest automaker, plans to build a new plant in China to drive up its production, but the central government may not give the approval as the country's auto industry is facing overcapacity risks.
