By injecting 1.6 billion euros ($2.1 billion) into its China business, Volkswagen AG has joined its peers in raising investment and expanding capacity in a bid to grab a bigger slice of the world's largest auto market.

The additional funds will be used in facilities at two new locations, the automaker said in a statement Monday.

"With these investments, we intend to boost the introduction of new models and advanced technologies in China. The group is convinced that these investments will maintain our market leadership in China and also allow us to take a leading position in the field of alternative propulsion technologies," said Winfried Vahland, president and CEO of Volkswagen Group China.

The new investments are to be financed from cash flow of the Shanghai Volkswagen and FAW-Volkswagen joint ventures and have been confirmed by the automaker's supervisory board, according to the statement.

VW's sales in China surpassed its sales in its home country, Germany, last year and in the first quarter of 2010, accounting for 22 percent and 26 percent of the company's global sales respectively.

Last year, VW decided to invest 4.4 billion euros ($5.9 billion) in China by 2012. The 1.6 billion euros will bring VW's total investment plans for China to 6 billion euros ($8 billion). It is expected to double its sales to 2 million vehicles a year and launch seven new or updated models produced locally in the country this year.

VW and its two partners already have existing plants in Shanghai, Changchun, Chengdu and Nanjing.

Other automakers also plan to expand in China in the next few years. Analysts say the market has enough space for the augmentation over the next 20 years, but the competition between global and domestic automakers will grow tougher.

BMW will begin construction of a new plant this year in Shenyang to expand its capacity to 300,000 units per year. Norbert Reithofer, BMW's CEO, was quoted by the Financial Times Friday as saying that it would be "a realistic scenario" to increase capacity to 300,000 cars if strong demand continued in the next few years.

Toyota's new plant, with a capacity of 100,000 units, will be put on stream in late 2011 or early 2012. Hyundai is set to build its third facility in China with Beijing Automotive Industry Holding. Top executives of GM also said several times this year the company is likely to build a new factory in China to meet surging demand.

"It has become a must for global automakers to increase capacities in China as auto sales in the country will keep rising on the whole for 20 years from now," Zhang Yu, director of Greater China Advisory Services with CSM Worldwide (Shanghai), told the Global Times.

Local players will compete with their global rivals in a much tougher market in the coming two years, Zhang said.

Local automaker Chery is quite confident of its ability to compete head-on with global automakers.

"We're quite used to surviving while combating joint ventures and foreign automakers. After years of efforts, I think we are exerting pressure on them with advancing quality and brand image," said Jin Yibo, a Chery spokesman.