China, the world's No 2 vehicle market and oil consumer, is scouting around for fuel-efficient cars.

A battery of automakers, from global names like Toyota and General Motors to indigenous companies like Chery and SAIC Motor, are conducting research on hybrid and fuel-cell cars.

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Hybrid cars have a conventional combustion engine as well as an electric motor to improve mileage. Fuel cells convert hydrogen into electricity to power the car and the only thing they emit is water.

Germany's Volkswagen, however, is betting on diesel-powered cars, although it also plans to make hybrids next year in Shanghai for the Beijing Olympic Games. 

The top car seller in China holds diesel cars as the "most practical" solution to the nation's energy and environmental problems. Modern diesel engines won't increase car prices and can save fuel consumption by 40 percent compared with petrol cars with the same engine capacity, the company said.

"Only with the approach to provide environmentally friendly technology to everyone and not just a few, can a positive effect on the environment be achieved," said Winfried Vahland, president of Volkswagen China Group.

Diesel engines are part of Volkswagen's plan to spend $600 million making its latest engines and gearboxes in China to cut fuel consumption and emission of its locally made cars by over 20 percent by 2010 from last year.

The plan is in response to China's goal to cut energy consumption per unit of gross domestic product by 20 percent by 2010 from 2005.

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