By DANIEL MICHAELS, BRUCE STANLEY (WSJ)Airbus's decision to set up an assembly line in China illustrates the potential challenges ahead for Western jet manufacturers as rivals from developing countries seek to enter their thriving industry.

Airbus, a unit of Franco-German European Aeronautic Defence & Space Co., said it had finalized plans to build an assembly plant for its single-aisle A320 jetliners in the Chinese city of Tianjin. Airbus in December said it was studying whether to build an assembly plant in China.

The decision came as Airbus announced that it had signed a contract to sell 170 planes to the Chinese government. The order for 150 planes from the A320 family of jetliners and a commitment to buy 20 of Airbus's proposed A350 XWB two-aisle jetliners gives Airbus a major lift as it tries to recover from recent management upheaval and embarrassing manufacturing problems. The A320s are valued at $9.6 billion at list prices, although major customers typically win large discounts.

Airbus's ability to clinch the new contract -- announced during a visit to China by French President Jacques Chirac -- and a previous order with China for 150 planes was likely enhanced by its decision to build a plant in Tianjin. Both orders will be filled partly by assembling planes in the Chinese factory, using components shipped from Europe. Because Airbus's work in China will involve assembly, which is less intensive technologically than other parts of the plane-making process, it likely won't involve technology-trade issues.

Getting a strong foothold in China's vast market could be strategically important for Airbus in the long term. Rival Boeing Co. of Chicago says China will require about 2,880 new jetliners, with a catalog value of $280 billion, by 2025.

But the Airbus investment in the Chinese assembly line also could carry big risks for EADS. The assembly plant won't be initially profitable as an industrial venture for Airbus, because it will be expensive to establish and operate, according to a person familiar with plans for the operation. An Airbus spokesman in Beijing declined to comment on financial terms.