Air France KLM is in talks to set up a cargo venture with China Southern Airlines, as it expands its capacity in the fast-growing market.

"KLM has started to discuss a cargo joint venture with China Southern, but the talks are in the initial stage," chief executive Jean-Cyril Spinetta told reporters on Thursday.

He would not give the size of a possible deal with its code-share partner.

Rival Lufthansa's Cargo unit is already operating a cargo tie-up with regional carrier Shenzhen Airlines.

Riding a boom in trans-Atlantic air traffic, Air France KLM has seen 15 percent annual sales growth in China.

China is Air France KLM's biggest revenue contributor in cargo services, and is its number four globally in the long-haul business, after the United States, Japan and Canada.

"We've seen a 15 percent rise in annual sales here in the past years and could keep up the momentum," said Spinetta, who became head of Air France nine years ago.

The Dutch-French giant is set to operate 59 weekly flights to China from the end October and would increase the frequency by 15 percent annually till 2010, he added.

Spinetta sees the 2008 Beijing Olympics as a golden opportunity to boost its market share in China. He hoped to use the A380 jumbo jet -- which it is scheduled to receive in April 2008 -- for the occasion, even though there could be delays in its delivery.

Air France KLM had ordered 10 A380s and has options to buy four more. It has already suffered a delay in A380 production last year, which pushed back the airline's first delivery date to 2008 from April 2007.

"There could be further delays, we don't know how long, but we hope to fly it to China for the Olympics," he said.