Volkswagen AG plans to boost local production of its latest engines and transmissions in China as part of its strategy to meet fuel consumption target as well as rising demand for fuel efficient vehicles, Shanghai Daily reported yesterday, citing a VW executive.

VW announced in 2007 that it would cut the average fuel consumption of its Chinese-made vehicles by 20% in 2010. To realize the target, the German carmaker is pushing forward its Powertrain Strategy that focuses on the local production of its turbocharged stratified injection engines and double-shift gearbox.

"The fuel consumption of our vehicles in China is expected to be reduced by 17% by this year, so that we are confident to achieve the target by next year," Winfried Vahland, president and CEO of Volkswagen Group China, said in Shanghai on Monday.

VW will build a new plant in northeast China's Dalian city to make 7-speed DSG transmissions next year with an annual output of 300,000 units. The company makes 1.8-liter and 2.0-liter TSI engines in Dalian and has started producing 1.4-liter TSI engines in Shanghai.

Its TSI engine and DSG transmission consumes up to 25% less fuel than competitors. The demand for the 1.4-liter TSI engines is growing as China has halved the sales tax (to 5%) on cars with small engines to promote fuel-efficient and eco-friendly vehicles.