Volkswagen is still the leading foreign group operating in China but the auto giant's sales have drooped as local brands rise. It is also seeking to insulate itself from global tensions over semiconductors.

The group announced a series of new electric and hybrid vehicles in April and an assisted driving system designed specifically for the Chinese market in an effort to counter that slide.

"We are accelerating and deepening the implementation of our 'In China, for China' strategy -- moving beyond localised production to mastering the core technologies that shape tomorrow's mobility," Ralf Brandstatter, CEO of Volkswagen Group China, said in a news release on Wednesday.

It is the first time the Volkswagen Group has developed its own in-house chip of this sort, a spokesman said.

Responsibility for its design and production will lie with a joint venture between CARIAD, Volkswagen's software company, and Chinese technology company Horizon Robotics.

Smart driving capabilities have emerged as a key battleground in China's cut-throat domestic auto market.

Semiconductors have also increasingly become the target of global trade tensions, in particular between the United States and China.

Washington has steadily expanded export controls in recent years, particularly in advanced chips and digital infrastructure.

European automakers have also been rocked by a row between China and the Netherlands over Nexperia chips, which despite being relatively simple in technology terms are nonetheless crucial as vehicles rely more on electronics.

Volkswagen's aim with the new chip is "taking control of a key technology that will define the future of intelligent driving", CEO Oliver Blume said in the news release.

"This marks the next logical step in our strategy for outstanding long-term innovation capabilities."

The chip is expected to be delivered within the next three to five years, the release said.

Asked whether there were plans to eventually use the chip outside the Chinese market, a spokesman said the focus was currently on "localised implementation".

"Looking ahead, we will align with the Group's overall strategic roadmap to feed technological achievements from China back into the global business," he said.

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