BERLIN -- Volkswagen has extended a joint venture with China's FAW Group Corp by 25 years to enhance research and development activities as it targets an increasing share of the world's biggest car market.
Volkswagen and FAW will "significantly expand" existing r&d activities in China and move into new business areas, above all in the field of alternative drive technologies, VW said in a statement Friday.
The current pact with FAW, which will expire in 2016, has been extended to 2041, VW said. The contract extension with FAW was signed on Friday on the occasion of talks between German Chancellor Angela Merkel and Chinese Premier Li Keqiang in Berlin. The length of the extension appears customary. VW's second joint venture with SAIC was extended in 2002 by 28 years until 2030. BMW in June extended its partnership with Brilliance China Automotive Holdings until 2028.
VW said in July it will invest 2 billion euros with FAW to build two more assembly plants. The German group currently operates eight car-making factories and nine component plants in China.
VW also said on Friday that it would spend about 100 million euros with SAIC on a new test site and proving ground near the northwestern town of Urumqi where the carmaker opened a factory last year.
Robust growth in China has helped VW offset shrinking demand in other emerging countries and a sluggish recovery of the European car market from a 20-year low. China is vital to VW's goal of overtaking Toyota Motor Corp. to become the world's No. 1 automaker by 2018. The country is VW's largest sales region and a key earnings contributor.
"Enhancing ties with its Chinese partners is a must for VW which is overly dependent on the market," Frankfurt-based Bankhaus Metzler analyst Juergen Pieper said.
VW Group last year sold almost 3.3 million cars in China, about a third of its record global deliveries of 9.73 million. Nine-month group deliveries in China, including the Audi luxury brand and sports-car maker Porsche, jumped 15 percent to 2.72 million autos.
The two joint ventures contributed 2.62 billion euros ($3.3 billion) to VW's first-half net income, up from 2.37 billion euros last year. VW also received 2.8 billion euros in dividends from the two ventures last year.
VW established the joint venture with SAIC to produce the Santana model in 1985, making it one of the first foreign automakers to enter the Chinese market. The FAW joint venture was forged 1991 in Changchun for license production of the Audi 100 sedan.
Reuters and Bloomberg contributed to this report