– photo by Volswagen

Volkswagen AG sold 450,000 more of its passenger cars in China in 2012 than in all of Europe, vindicating the German auto maker’s continued heavy investment in foreign markets.

The VW brand registered particularly strong growth in the U.S., with sales up 35% at 438,100 vehicles, but it is the emergence of China as by far the brand’s most important market via VW’s manufacturing joint ventures in the country that underpinned Volkswagen’s performance. The VW brand’s sales in China rose 25% to 2.15 million vehicles. In contrast, VW’s sales across Europe fell 1.2% to 1.7 million units, with sales in Western Europe, excluding Germany, declining 6.9% to 844,500 vehicles.

Volkswagen said last month it would raise investments in its global operations to about €16.7 billion a year, from about €12.5 billion annually under its previous plans. Volkswagen’s Chinese joint ventures plan to invest an additional €9.8 billion in new plants and models through 2015, roughly €3 billion more than previous investment plans called for.

While Europe’s car market continues to contract under the weight of squeezed consumer spending, Volkswagen’s success abroad is rubbing salt into the wounds of its main European competitors, which are steadily losing market share to their more strongly financed German counterpart.

Volkswagen, Europe’s leading auto maker by sales,  said it delivered 5.74 million VW vehicles to customers in 2012, a record for the brand, with a surge in demand at the end of the year triggered by the launch of a new version of the VW Golf, the brand’s flagship model. Sales in December rose 31% to more than half a million cars.

The Chinese market, the world’s largest, is showing strong growth. The China Association of Auto Manufacturers on Friday revealed that auto sales in the country rose 4.3% in 2012, and projected a 7% rise this year.

Volkswagen—whose other mass-market brands include SEAT and Skoda, as well as premium brands Audi, Bentley, and Porsche—cautioned that conditions in the industry could be tough in 2013, though the VW brand is well placed.

The year ahead will be “very demanding,” said Christian Klingler, Volkswagen’s head of sales. “Our new Golf has got off to an excellent start and significantly strengthened Volkswagen’s competitive position.”