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Plane, car deals mark Chinese state visit to France

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[March 27, 2014]  By Andrew Callus and Elizabeth Pineau

PARIS (Reuters)  China's President Xi Jinping and French counterpart Francois Hollande oversaw the signing of a series of industrial co-operation deals and multi-billion dollar aircraft sales in Paris on Wednesday, the business highlights of a Chinese state visit.

Much of what was signed had only ceremonial significance.

However, Hollande's government, bruised by losses in last weekend's municipal elections and deeply unpopular for its failure to tackle record unemployment, hopes to encourage more deals and harness France's patchy economic recovery more tightly to the growth of the world's second-largest economy.

"Eighteen billion euros' worth of contracts. That means jobs, growth, and above all the prospect of more to come in the years ahead," Hollande said.

At the signing ceremony at the president's residence, the Elysee Palace, Dongfeng <0489.HK> and PSA Peugeot Citroen <PEUP.PA>, signed a deal in which the Chinese car maker will buy a 14 percent stake as part of a recapitalization deal for the struggling French carmaker.

Peugeot and Dongfeng plan to extend an existing joint venture and Chinese production to enter new Southeast Asian markets and to jointly develop new vehicles and technologies.

At the same ceremony, and flanked by their respective delegations in a room decorated throughout in red, the two men also watched China sign a new 10-year agreement allowing Airbus <AIR.PA> to extend a deal to assemble A320 planes in Tianjin to 2025.

China also signed up to buy 70 new aircraft including 27 Airbus A330s which had been previously ordered but frozen because of a trade dispute  all worth $10.2 billion at list prices, and to co-produce French EC-175 helicopters with Airbus and co-operate on turbo-prop engines with France's Safran <SAF.PA>. Aerospace accounts for 29 percent of French exports to China.

The other highlight of the deal signing was a set of nuclear energy and liquefied natural gas (LNG) agreements involving French utility EDF <EDF.PA>, nuclear engineering firm Areva <AREVA.PA>, China General Nuclear (CGN) <GDNCP.UL>, Total <TOTF.PA> and CNOOC <0883.HK>  all of which are already working on partnerships in China.

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France trails far behind neighboring Germany  also on Xi's European itinerary  on the trade front with China, accounting for just 1.2 percent of Chinese imports compared with 4.8 percent in Germany's case.

Foreign direct investment (FDI) in both directions between France and China is modest, but France is in deficit there too at the moment.

French FDI in China totaled 16.7 billion euros ($23 billion) at the end of 2012  just 1.83 percent of China's total FDI but still dwarfing the 4.2 billion euros of Chinese investment in France, which is just 0.9 percent of its FDI total, according to Bank of France figures.

Dongfeng's Peugeot stake purchase alone, at 800 million euros, is equivalent to a fifth of that FDI stock.

Xi's visit marks 50 years of diplomatic relations between the two countries. Recognition of the People's Republic of China by France in 1964 in the face of anti-Communist hostility elsewhere in the West forms part of France's claim to a special relationship.

(Additional reporting by Marine Debliquis; editing by Greg Mahlich and Susan Fenton)

[ 2014 Thomson Reuters. All rights reserved.]

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