Volkswagen held the title of best-selling brand in the world's largest auto market for years until 2023, when it lost its crown to homegrown electric vehicle maker BYD.
Globally, the group has invested tens of billions in its own pivot to EVs, which in China included taking a minority stake in manufacturer XPeng last year.
The new multi-billion-euro investment will be used to further expand Volkswagen's production and innovation hub in Hefei, in the eastern province of Anhui, the group said in a news release.
That will increase its research and development capacity and will also support preparation for two car models being developed with XPeng, it said.
"With our 'In China, for China' strategy, we have a strong plan and are accelerating the realignment of our business, with more customer focus, more speed and more local development," executive Ralf Brandstaetter said in the statement.
"This additional investment in the (Hefei) site underlines our ambition to quickly expand our local innovative strength."
China's market for EVs dwarfs the rest of the world.
Of all new EVs sold globally in December last year, 69 percent were in China, according to the research firm Rystad Energy.
The battle for such a prized market features both established international and domestic carmakers, as well as more recent upstarts such as smartphone and appliance maker Xiaomi.
Volkswagen has a 40-year history in China and calls itself an "integral part of the Chinese industrial ecosystem".
Results released by the group last month showed that its sales grew modestly in China last year but at a slower rate than in 2022.
Its global outlook for 2024 was also subdued.
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