By Trevor Hunnicutt, Jeff Mason and Steve Holland

WOODSIDE, California (Reuters) -U.S. President Joe Biden and Chinese leader Xi Jinping agreed on Wednesday to open a presidential hotline, resume military-to-military communications and work to curb fentanyl production, showing tangible progress in their first face-to-face talks in a year.

Biden and Xi met for about four hours on the outskirts of San Francisco to discuss issues that have strained U.S.-Chinese relations. Simmering differences remain, particularly over Taiwan.

In a significant breakthrough, the two governments plan to resume military contacts that China severed after then-House of Representatives Speaker Nancy Pelosi visited Taiwan in August 2022.

“We’re back to direct, open clear direct communication on a direct basis,” Biden said.

In addition, Biden said he and Xi agreed to high-level communications. "He and I agreed that each one of us can pick up the phone call directly and we'll be heard immediately."

But in a comment likely to irk the Chinese, Biden told reporters later that he had not changed his view that Xi is a dictator.

"Well, look, he is. I mean, he’s a dictator in the sense that he is a guy who runs a country that is a communist country," Biden said.

Xi told Biden that the negative views of the Communist Party in the United States were unfair, a U.S. official told reporters after the meeting.

Biden and Xi came into the talks looking to smooth over a rocky period in relations that took a turn for the worse after a suspected Chinese surveillance balloon transited the United States and was shot down by a U.S. fighter jet in February.

The White House said Biden raised areas where Washington has concerns, including detained U.S. citizens, human rights in Xinjiang, Tibet and Hong Kong and Beijing’s aggressive activities in the South China Sea.

"Just talking, just being blunt with one another so there’s no misunderstanding," Biden said.

MILITARY, TAIWAN

U.S. and China's militaries have had a number of near-misses and acrimonious exchanges over the past year. After the pledge to renew communications, U.S. Secretary of Defense Lloyd Austin will meet his Chinese counterpart when that person is named, a senior U.S. official said.

Biden and Xi agreed China would stem the export of items related to the production of the opioid fentanyl, a leading cause of drug overdoses in the United States. "It’s going to save lives,” Biden said, adding he appreciated Xi’s “commitment” on the issue.

Under the agreement, China will go directly after specific chemical companies that make fentanyl precursors, a senior U.S. official told reporters. He vowed to "trust but verify" Chinese actions on the drug.

The two leaders also agreed to get experts together to discuss the risks of artificial intelligence.

A U.S. official described an exchange over Taiwan, the democratic island that China claims as its territory. China's preference is for peaceful reunification with the Chinese-claimed island of Taiwan, Xi told Biden, the U.S. official said, but Xi went on to talk about conditions in which force could be used.

Biden said he stressed the need for peace and stability in the Taiwan Strait. The U.S. official said Biden argued to maintain the status quo and for China to respect Taiwan's electoral process.

"President Xi responded 'Look, peace is all well and good, but at some point we need to move towards resolution more generally'," the official quoted Xi as saying.

Xi also urged the United States to stop sending weapons to Taiwan and support China's peaceful "reunification" with Taiwan, Chinese state media said.

Bonnie Glaser, a Taiwan expert at the Germen Marshall Fund of the United States, said Xi seemed to have conveyed both threats and assurances on Taiwan.

"The suggestion that a resolution needs to be found in the near term is a worrisome sign, even if he emphasized that there are no plans for military action against Taiwan in the coming years," she said.

Biden said he asked Xi to use his influence with Iran to urge Tehran not to launch proxy attacks on U.S. targets in the Middle East as the Israel-Hamas conflict continues in Gaza.

RESPECT AND WARMTH

Biden welcomed the Chinese leader at the Filoli estate, a country house and well-manicured gardens about 30 miles (48 km) south of San Francisco, where they will move later for a summit of the Asia-Pacific Economic Cooperation (APEC) forum.

APEC meets amid relative Chinese economic weakness, Beijing's territorial feuds with neighbors and a Middle East conflict that is dividing the United States from allies.

Xi came into the meeting looking for respect from the United States as China's economy struggles to recover from sluggish growth.

Biden, who had long sought the meeting, struck a warm, welcoming tone. Video of the two clasping hands in farewell after the meeting was posted on X by the Global Times, China's state-backed tabloid.

"Planet Earth is big enough for the two countries to succeed," Xi told Biden as they and their delegations sat across from each other at a long table in an ornate conference room.

Biden said the U.S. and China had to ensure that competition between them "does not veer into conflict" and manage their relationship "responsibly."

After lunch, the leaders took a short walk together in the manicured garden of the mansion following an interaction that lasted around four hours. Biden waved to reporters and gave a two thumbs up sign when asked how the talks were going. "Well," he said.

Xi told Biden as they began their talks a lot had happened since their last meeting a year ago in Bali, citing the impacts of the COVID pandemic, and calling the U.S.-China relationship "the most important bilateral relationship in the world."

"For two large countries like China and the United States, turning their back on each other is not an option," he said. "It is unrealistic for one side to remodel the other."

After the two met, Biden welcomed global leaders to the APEC meeting in San Francisco, where he said Xi regarded the visit as a homecoming given the city’s large Chinese population.

(Reporting by Trevor Hunnicutt; Additional reporting by Steve Holland, Michael Martina, Martin Pollard, Jeff Mason, David Lawder, David Brunnstrom and Andrea Shalal; Editing by Josie Kao and Stephen Coates)