The new budget marque will become VW Group's 13th brand
Volkswagen has agreed the concept and design of its new budget city car, according to reports.
Company officials told Reuters at the Beijing motor show that the car had been signed off, with project manager Hans Demant saying: "The concept and design are now in place. We will produce all components in China."
Approval for the new brand has already been given by VW's higher management, with its first appearance scheduled for 2016. The marque's first model is expected to cost around £5000 and be built and sold almost exclusively in China.
However, if the model proves successful, VW could expand its markets to include India, Latin America, Eastern Europe, the Baltic region and Africa.
The project has previously hit cost problems, reportedly because of trouble engineering a budget car that could still hit VW's high internal quality standards.
The firm's research and development boss Dr Heinz-Jakob Neusser told Autocar at the Geneva motor show that "we are still working on the issue of the brand, but we haven't made a decision on it yet. We know we are not prepared to launch cars that don't meet our maximum quality aspirations, and we know we face a challenge".
VW's launch of a low-cost brand would put it into direct competition with the likes of Dacia, as well as allowing the group to push into lucrative markets like China.
The new brand would be VW Group's 13th marque, and will aid the group to reach a set target to become the world's biggest car maker by 2018, surpassing Toyota.
Volkswagen officials in the UK wouldn't comment on plans for the new brand.