July 28 (Bloomberg) -- PSA Peugeot Citroen, Europe’s second-biggest carmaker, dropped a plan to build a third factory in China with local partner Dongfeng Motor Group Co.

Peugeot’s two existing Chinese plants, with a combined annual production capacity of 450,000 vehicles, are “quite sufficient to cover our sales,” spokesman Pierre-Olivier Salmon said by phone.

Paris-based Peugeot Citroen has been losing ground in China, where its sales last year fell 3.7 percent to 188,000 vehicles even as the market grew 9 percent, amid a reorganization of the Citroen brand’s dealer network. Former Chief Executive Officer Christian Streiff, who was replaced in March by Philippe Varin, had said before the global auto market slump that the company was choosing a site for a third factory.

Salmon spoke after China Knowledge, a business newsletter, reported that Peugeot and Dongfeng had stopped building the new facility. “There’s no halt to any construction because there was never even any firm plan to build a plant,” Salmon said.

To contact the reporter on this story: Laurence Frost in Paris at lfrost4@bloomberg.net

Last Updated: July 28, 2009 06:29 EDT