Iconic German car maker Volkswagen AG will build two new vehicle plants in China at an investment of US$2.7 billion.

Volkswagen said it will build the plants at the coastal cities of Qingdao and Tianjin in eastern China. Volkswagen Chief Executive Officer Martin Winterkorn said China is Volkswagen's largest and most important market.

Like Us on Facebook

"To satisfy the demands of our customers in the country, we are engaging in a further substantial expansion of our capacities in China together with our Chinese partner FAW Volkswagen."

Volkswagen delivered some 1.51 million vehicles in China in this January to May, an 18 percent rise year-on-year. Winterkorn expects Volkswagen's China deliveries to increase at least 10 percent from last year's record. This will being total VW deliveries to over 3.5 million vehicles.

Volkswagen's US$2.7 billion investment in China will extend until 2018 and will go to expanding capacity and increasing the number of its models produced in China.

Volkswagen's expansion in China fits into its plans to overtake Toyota Motor Corporation as the world's largest automaker by 2018.

For the first time in its history, Volkswagen sold over three million VW-brand cars worldwide in the first half of this year, an increase of 3.8 percent year-on-year. Volkswagen sold 3.07 million cars worldwide in the first half compared to 2.95 million last year.

In Europe, Volkswagen sold 864,100 Volkswagen brand cars in the first half of the year, up 2.4 percent. In its home market Germany, Volkswagen sales rose by just 0.8% to 285,700 cars. Sales of Volkswagen brand cars fell four percent to 127,100 in Eastern Europe and dropped 13 percent to 67,400 vehicles in Russia.

"The situation on global markets will remain challenging in the second half of the year and will keep us very much on our toes," said Christian Klingler, head of Volkswagen group sales and marketing.