China quality watchdog says 'highly concerned' about emission issue

China is the world's largest auto market, and even though few diesel passenger cars are sold there, analysts said the scandal may impact consumers

China's quality watchdog said on Monday it was "highly concerned" about the mechanism in Volkswagen AG's diesel cars designed to trick emissions tests and would take appropriate follow-up measures.

The General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) did not specify what action it would take beyond demanding that the problem be addressed as soon as possible.

In a separate statement, the environment ministry also said it would launch an investigation into Volkswagen vehicles.

China is the world's largest auto market, and even though few diesel passenger cars are sold there, analysts said the scandal may impact the purchasing decisions of Chinese consumers.

"I have so far seen little impact on consumers' confidence and trust in the Volkswagen brand (in China), but we need to continue to monitor that," said Yale Zhang, head of Shanghai-based consulting firm Automotive Foresight.

"Their sales are already weak this year thanks to the slowdown in China's general economy. If Volkswagen sales took a further beating from the current emissions scandal, that would further complicate their position globally following the scandal," he added.

AQSIQ said Volkswagen would recall 1,950 imported cars in China, predominantly imported Tiguan SUVs, with the software that gives misleading emissions results in laboratory tests.

Volkswagen's two Chinese joint ventures that produce cars domestically said last month the software that skirts emissions tests does not affect their cars.

China is the latest in a string of countries that have launched investigations into Volkswagen cars since the scandal first erupted in the United States last month. On Monday, Singapore's environment agency said the emissions mechanism affected 650 cars and that it had suspended approvals for Volkswagen diesel vehicles until the company has fixed the problem.

Volkswagen set aside euro 6.5 billion ($7.4 billion) in the third quarter to cover servicing and marketing outlays related to the scandal, which could contribute to an annual loss for the Volkswagen brand this year.