Foreign auto giants Ford Co. and Volkswagen AG plan to expand in China, the world's largest auto market, by building additional plants to boost capacity, even as Chinese authorities seek to ease foreign investment in auto production.

U.S. auto giant Ford Motor Co. has announced plans to build a new plant in eastern China's Hangzhou for $760 million dollars. The facility is expected to initially boost the firms’ annual capacity in China by 250,000 vehicles when the project is completed.

Germany's Volkswagen said it will build a small assembly plant in Xinjiang Uygur Autonomous Region this year, the first auto production facility in the area, to explore the markets of northwest China and central Asia.

In guidelines issues at the end of December, Chinese regulators said they would no longer encourage foreign investment in vehicle manufacturing in China to limit overcapacity and improve the strength of domestic automakers.

“For a country that has said it no longer wants to encourage new foreign investment in its auto industry, China certainly seems to be getting a lot of new foreign investment,” said China auto expert G.E. Anderson.

Ford said on Thursday that construction of the Hangzhou plant will start later this year, and production is scheduled to begin in 2015. The company wants annual output in China of 1.2 million vehicles by 2015. It recently opened a second plant in Chongqing to build Focus models.

"We're looking at this more than just this quarter or this calendar year," Ford's Asia chief, Joe Hinrichs, said in an interview with Reuters.

"We're looking at this as how does Ford set itself up for success for the next several decades in Asia Pacific."

Ford expects industry sales in China to hit 30 million vehicles by 2020, compared to 18.5 million last year.

The U.S. automaker aims to increase global sales by around 50 percent from 2010 to 8 million vehicles annually by 2015. By 2020, Ford expects one third of its sales will come from emerging markets in the Asia Pacific and African regions.

Ford, which makes Fiesta, Focus, Mondeo and other sedans in China in a three-way tie-up with Chongqing Changan Automobile Co. Ltd. and Japan's Mazda Motor Corp., is a relative latecomer in China, where General Motors Co. and Volkswagen have a sizeable lead.

Ford sold 320,658 vehicles in China last year, compared with Volkswagen's annual tally of 2.26 million and GM's 2.55 million, according to Reuters.

According to Hinrichs, Ford will gain market share as it rolls out new vehicles, adding it won't happen overnight. He suggested Ford will be closer to full strength in China in 2015.

Volkswagen’s plant is expected to become operational in 2013 and produce 50,000 units of small sedans annually, said Li Yi, an official with the trade and investment bureau of Urumqi's Development Zone.

Xinjiang covers 1.66 million square kilometers of land and borders eight countries, including Russia, Kazakhstan and Pakistan.

Since 2010, China has been pushing for greater opening-up of the resource-rich and strategically-located Xinjiang, aiming to transform it into a regional economic hub from a relatively underdeveloped desert region.

“The general rule-of-thumb is that a factory needs to produce about 250,000 units a year to break even. Why would VW, run presumably by smart people, build a factory in the middle of nowhere that appears to have no chance of breaking even?,” Anderson wrote on Facebook.

“This was a political decision, not an economic one, and sometimes (most of the time) politics rules in China.”