Airbus is setting up an assembly plant in China, its first factory outside Europe, to cash in on soaring demand for air travel in the region. Demonstrating the size of the market for the troubled plane maker, it also signed an estimated $10bn (￡5.3bn) deal today to sell 150 A320s to Chinese airlines. The order adds to a 150 plane contract that China signed with Airbus last year.

The factory in eastern China's Tianjin will produce as many as four A320 planes a month, beginning in 2009, said Louis Gallois, Airbus' chief executive officer. Mr Gallois is one of more than two dozen chief executives accompanying French President Jacques Chirac on a state visit to China.

"It's a very good step of cooperation between China and the European industries," Mr Gallois told reporters in Beijing. "There will be more of these steps."

The factory may help Airbus, which sold its first aircraft to China 13 years after Boeing, win more business from the country's airlines. China also signed a letter of intent to buy 20 Airbus A350 aircraft, which Airbus is redesigning to compete with Boeing's 787 model. The A350 carries a list price of between $158.6m and $182.6m.

Economic growth is spurring travel demand in China, the second-largest air travel market after the US. Passenger numbers should rise 17pc in 2006, from 138.3m last year, the aviation regulator said. Travel demand in the country may grow at an annual rate of 8.7pc until 2016, the London-based World Travel & Tourism Council said in March.

The country's airlines are struggling to turn this rising traffic into profit, as government restrictions on ticket prices have prevented them from raising fares enough to cover higher jet fuel prices. Airlines in China lost 2.57bn yuan (￡175m) in the first half, according to the country's aviation regulator.

Chinese airlines are among the world biggest buyers of so- called single-aisle aircraft, which carry about 150 passengers and are used mainly on domestic routes of up to 3,000 nautical miles.