SHANGHAI (Reuters) - Volkswagen will exit its controversial plant in China's Xinjiang region after it and its Chinese partner agreed to sell the asset to a Shanghai government-owned buyer, two people familiar with the matter said on Wednesday. The German automaker and SAIC will sell the plant to Shanghai Motor Vehicle Inspection Certification (SMVIC), a subsidiary of state-owned Shanghai Lingang Development Group, the sources said.

The transaction value of the deal was not immediately clear.

The decision to free itself from the plant comes as Volkswagen is battling to boost flagging sales in China amid intense competition and sluggish demand.

Europe's car companies also have to contend with the impact of a potential trade war between Beijing and the European Union after the EU imposed anti-subsidy import tariffs on China-made electric vehicles.

The VW brand, which has lost its title as the best-selling brand in China to BYD, is working with Chinese partners like Xpeng to develop new models better suited to Chinese consumers, aiming for over 30 new electric or hybrid models by 2030.

Its presence in Xinjiang has become a headache in recent years as investors have mounted pressure on the carmaker to get out of the region, where rights groups have documented abuses including mass forced labour in detention camps. Beijing denies any such abuses.

Under the deal, SMVIC will also take over SAIC/VW's test tracks in Turpan Xinjiang and Anting in Shanghai, they added. Following the deals, Volkswagen will no longer have any presence in Xinjiang, they said. At the same time, Volkswagen will extend its partnership with SAIC by a decade to 2040 and the joint venture aims to release 18 new models by 2030, including two extended range models for Chinese consumers in 2026, the people said. The people declined to be identified as details of the deal were not yet public.

In response to a Reuters request for comment, SAIC said its joint venture with VW will make an announcement but it did not say when it would be made.

VW did not immediately reply to a request for comment.

VW said earlier this year it is talking to SAIC about the future direction of its business activities in Xinjinag and considering various scenarios.