The latest deal follows 20 years of cooperation between the two firms and will enable them to significantly expand existing research and development activities in China and move into new business areas in the coming years, particularly in the field of alternative drive technologies.

Earlier this year Volkswagen and FAW agreed to expand their production capacity by building two new plants in Qingdao and Tianjin.

Prof Dr Martin Winterkorn, chairman of the Board of Management of Volkswagen Aktiengesellschaft, said: ‘Together with its strong partners Volkswagen is focusing on innovation, eco-friendly technologies and excellently trained employees in China. Today's agreements pave the way for the sustainable development of China's automotive industry and for the Volkswagen Group and its joint ventures to benefit from growth.’

The deal comes as Volkswagen joins up with Chinese joint venture partner SAIC to invest some €100 million in a new proving ground in the Xinjiang region to test models from Shanghai Volkswagen. The facility will be built to the south east of the Urumqi plant commissioned in August 2013.

In the first three quarters of this year, Volkswagen Group China together with its Chinese joint ventures Shanghai Volkswagen and FAW-Volkswagen delivered more than 2.7 million vehicles, an increase of 15.2% on the comparable prior-year period.