Volkswagen AG said it would 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.

In 2007, the German car maker announced it would cut the average fuel consumption of its Chinese-made vehicles by 20 percent in 2010.

"The fuel consumption of our vehicles in China is expected to be reduced by 17 percent 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 yesterday.

To realize the target, the German car maker is pushing forward its Powertrain Strategy that focuses on the local production of its turbocharged stratified injection engines and double-shift gearbox.

The combination of its TSI engine and DSG transmission consumes 20 to 25 percent less fuel compared with competitors while it also delivers strong power and enables fast gear changes, Volkswagen said.

"If you want to become No. 1 in the market, you have to be No. 1 in technology," Vahland said.

The car maker also plans to build a 7-billion-yuan (US$1 billion) new facility in Dalian in northeast China's Liaoning Province, which will make seven-speed DSG transmissions next year with an annual output of 300,000 units.

The nation's biggest foreign car maker also makes 1.8-liter and 2.0-liter TSI engines in a plant in Dalian, which is on course to grow capacity to 30,000 units a year. It also started producing 1.4-liter TSI engines at another plant in Shanghai this year with Chinese partner SAIC Motor Corp.

Vahland said the demand for the 1.4-liter TSI engines is particularly high as China has halved the purchase tax on vehicles powered by small engines to promote fuel efficient and eco-friendly cars.