FRANKFURT (Reuters) - French carmaker PSA Peugeot Citroen's (>> PEUGEOT) 2014 sales rose 4.3 percent thanks to a 32 percent jump in deliveries in China, in a sign that mass market producers were outperforming premium brands during an economic slowdown in the country.

PSA said China became its largest market, reaching 734,000 vehicles in 2014, or 25 percent of overall deliveries, thanks to the addition of 100 dealership networks and as customers snapped up midsized crossover vehicles like the Peugeot 3008.

China is a key part of efforts by PSA Chief Executive Carlos Tavares to revive the company after the French state and China's Dongfeng (>> Dongfeng Motor Group Co. Ltd) took 14 percent stakes in the company as part of a 3 billion euro (2.5 billion pounds) bailout.

The alliance with Dongfeng has helped Paris-based PSA to reduce its reliance on Europe and expand in the world's largest car market where manufacturers shift large volumes despite sales growth slowing from 14 percent to 6.9 percent in the past year.

The Chinese expansion is timely as PSA seeks to cut costs, streamline its model lineup and raise pricing in pursuit of a two percent operating profit margin in 2018.

PSA figures published on Wednesday indicated that mass carmakers may be taking less of a hit from slower China sales than premium brands like BMW (>> Bayerische Motoren Werke AG), which faces demands for rebates from disgruntled dealers.

Peugeot branded car sales rose 43.1 percent in China last year to 386,565 cars. BMW and Mini saw sales in mainland China rose by 16.7 percent last year, with a total of 455,979 deliveries.

"We prefer mass over premium exposure in China in 2015," Stuart Pearson, an autos analyst at Exane BNP Paribas said in a note on Wednesday.

"While growth in financial services should support the overall market, we fear that the 1 million plus units of new premium capacity added over 2014-15 will continue to pile pressure on pricing."

CHINA'S IMPORTANCE

China sales are critical for the earnings of European carmakers, accounting for over 50 percent of global earnings for each of the German manufacturers in 2014, analysts at Bernstein Research said in a note, adding that Volkswagen (>> Volkswagen AG) could be a beneficiary while BMW may be losing momentum.

"Recent management changes suggest (BMW) CEO Norbert Reithofer felt it was a good time to bow out on a high. At the risk of sounding too cynical, it could be argued that investors would be well advised to follow his lead," Bernstein said.

China now contributes more than 500 million euros to PSA's 2014 group profits, including JV profits, parts sales to its joint ventures, and royalties, Bernstein said.

PSA made a net loss of 2.32 billion euros in 2013 and said after its rescue last year it might not return to positive cash flow until 2016.

In Europe car registrations rose 5.5 percent in the first 11 months of 2014, but Peugeot sales in the region have been squeezed by the increasing popularity of value brands like Skoda and Dacia and the expansion of premium brands.

Overall, PSA sales rose to 2.9 million cars in 2014, the company said. Group sales of the Peugeot, Citroen and DS brands in Europe rose 8.1 percent to 1.76 million vehicles.

(Additional reporting by Samuel Shen in Beijing; Editing by Mark Potter and Keith Weir)

By Edward Taylor