"The Chinese government has been promoting Chinese brands for some time now. In this context, joint ventures with foreign companies - such as FAW Volkswagen or SAIC Volkswagen for us - are encouraged to make a local marque," an official with unit Volkswagen China business daily Handelsblatt reported Wednesday.
VW is now in talks with its Chinese partners, looking at the market for models below €8,000 ($11,000), the report said, adding that the company's supervisory board was expected to approve the project.
"We look at this local brand as offering the opportunity to penetrate an area of the market from which we are currently absent in China," VW's manager for China, Karl-Thomas Neumann, said.
Volkswagen and unit Audi posted record sales figures in 2010, boosted largely by their success in China, now the world's largest auto market.