Volkswagen, which counts China as its largest market outside Germany,
lagged by far a nationwide market that had been expected to grow 10 to
15 percent in 2004, analysts said.

The German giant fell short of predictions of a slight rise in sales.
Its lackluster performance points to diminishing market share as
Japanese players from Toyota to Nissan move in on its turf, Reuters
reported.

"Volkswagen is losing its market share" rapidly, said Henry
Wu, an analyst at UBS. "Both Volkswagen's ventures in China are not
doing very well, but Japanese companies are growing their market share
very strongly."

Global auto makers are investing over US$13 billion in China to
triple annual production to about six million cars by 2010.

But executives and analysts say demand may not begin to recover until
the second half of 2005 at the earliest as customers look forward to
more price cuts and greater ease of imports in 2005.

"Momentum has only been single-digit growth in recent months.
Without more price cuts, we will not likely see double-digit growth
again," said Wu.

Volkswagen AG's two main ventures in China -- in Shanghai and
Changchun -- sold about 655,000 units in 2004, after surging 36 percent
to 698,000 units in 2003, executives told Reuters.

A senior executive said in November that the plant had been expecting
to sell about 360,000 vehicles in 2004.