VW's new brand will make smaller cars that will cost less than 8,000 euros ($10,750), German daily Handelsblatt said in an e-mailed excerpt of an article that will appear in upcoming edition.

"We see a local brand as an opportunity to get into new market segments," Karl-Thomas Neumann, chief executive officer of Volkswagen Group China, said in an e-mailed statement.

China's government is promoting local nameplates and all foreign carmakers' joint ventures in China have been asked to develop local brands, Neumann said in the statement.

The Wolfsburg, Germany-based carmaker declined to give further details on the likely partner or the segment. Volkswagen's partners in China include SAIC Motor Corp. and China FAW Group Corp.

Volkswagen may follow competitors General Motors Co., Honda Motor Co. and Nissan Motor Co. in introducing a new, cheaper marque in China as they seek to win market share from Chinese rivals.

Nissan and its Chinese partner Dongfeng Motor Group Co. plan to introduce a new passenger car brand Venucia from early 2012 to meet demand for cheaper models, the Yokohama, Japan-based automaker said in September.

GM will start sales of the first car to be made by its SAIC-GM-Wuling Automotive Co. joint venture this year. The four-door Baojun 630 compact sedan will be part of a new brand of affordable vehicles and will cater to "first time buyers in the nation's second and third-tier markets," the company said.

Honda and its partner Guangzhou Automobile Group Co. expects to start sales of its Li Nian S1 sedan in the first half of 2011, the first car made under its new Everus brand. The 1.3- and 1.5-liter engine S1 is based on Honda's City small car and will target entry-level car buyers, Honda said.

PSA Peugeot Citroen, Europe's second-largest carmaker, also is planning a new local brand with local partner China Changan Automobile Group Co. The French automaker is considering a second Chinese brand with other partner Dongfeng Motor Group Co.