Zhejiang Geely Holding Group, parent company of Volvo Car Corp and Geely Automobile Holding Ltd, is developing a new model at its new research and development center in Sweden.
The smaller car, developed jointly by engineers from Geely and Volvo, is designed to give the Swedish luxury brand, which Geely acquired in 2010, a foothold in the entry-level auto-buying segment, according to Wall Street Journal reports.
Although the new model is only at the initial development phase, which is due to last several years, the company said it is certain to meet Western markets' safety and quality standards.
The car reportedly will be locally produced at Volvo and Geely's joint venture in Chengdu and is positioned to compete with the Ford Fiesta, Honda Fit, Volkswagen Polo and the Toyota Yaris.
More details from Geely were not available on Monday.
In December, Volvo released the S60L, the brand's first locally built model, in China. Produced by the venture in Chengdu, it is Volvo's first model to be manufactured outside Europe and in the country that Alain Visser, the company's senior vice-president, regards as a pivotal part of its global revival plan.
The S60L reportedly will be exported to countries that include United States.
Volvo earlier set a goal of almost doubling annual worldwide sales to 800,000 units by 2020. Its sales increased by 1.4 percent to 428,000 units in 2013.
Volvos sold in China surged by almost 46 percent to 61,000 units, making the country lag by no more than 100 units behind the US, the brand's largest market.
In addition to the new R&D center in Sweden, Volvo and Geely's 30-70 joint venture also boasts a new auto production facility in Daqing, Heilongjiang province; an engine plant in Zhangjiakou, Hebei province; and an R&D center in Shanghai.
The new model - the first to be developed with Western standards at the Swedish center jointly owned by Geely - also will help the privately owned company to enter European markets.
Geely established the center in Gothenburg last February with the goal of addressing the needs of both Volvo and Geely, as well as leveraging Volvo's technological know-how.
The center recruited about 200 full-time employees, including 50 or more from China, to develop modular-architecture designs and sets of components for C-segment cars.
Analysts said setting up overseas R&D facilities is the best way for Chinese automakers to close the gap with foreign rivals in the global market.
In 2013, Geely's sales jumped 14 percent to 549,518 units in China. The company has targeted a 6 percent sales increase for 2014, based on the overall market's predicted improvement of 8 to 10 percent.