Beijing has threatened swift retaliation against a range of European Union industries if Brussels presses ahead with an investigation into government subsidies granted to two Chinese telecoms equipment companies.

The Chinese threat was delivered at a meeting with EU trade officials in Beijing late last month that was arranged at the behest of Chen Deming, China’s commerce minister, to try to defuse a brewing trade dispute that is straining commercial relations between the two sides.

Instead, it collapsed into acrimony, with the Chinese warning their EU visitors that they would respond to any investigation of Huawei and ZTE Corp by probing subsidies granted to European agriculture, automotive, renewable energy and telecoms companies. “Put it this way: it’s not like they went for a beer after and watched football,” one person briefed on the meeting said.

Karel De Gucht, the EU trade commissioner, declined to comment. An EU official sought to play down the meeting, saying that Brussels would wait to see what level of co-operation the Chinese would provide in an effort to ward off a formal trade complaint.

Nonetheless, concerns about the Chinese reaction – and pressure from worried member states – appear to have put on ice a case that once seemed imminent, according to several EU diplomats. They said it was now unlikely that Mr De Gucht would act before September.

In the meantime, both sides are bracing for another trade confrontation in the solar industry. European solar companies have been preparing a complaint accusing Chinese competitors of using improper government subsidies to underprice them, and requesting punitive tariffs. That complaint could materialise as early as this week, according to people familiar with the matter, and could also trigger Chinese retribution.

Combating Chinese government subsidies has been one of Mr De Gucht’s top priorities. The cutting-edge telecoms equipment industry, in which Huawei and ZTE have quickly gained market share, would be a signature case.

The European Commission was poised to open its investigation after informing member states at a closed-door meeting in June that it had “very solid evidence” that both companies had benefited from illegal subsidies to develop their fast-growing businesses.

The case, which could result in steep tariffs, is believed to centre on export credits supplied by the Chinese governments to facilitate overseas sales. Huawei and ZTE have denied receiving improper subsidies. Chinese officials have also denied the EU allegations.

Mr De Gucht’s case has been undermined by a lack of support from European telecoms companies – Ericsson, Siemens-Nokia, and Alcatel-Lucent – which fear that any action from Brussels could harm their own business interests in China’s fast-growing market.

In an effort to get around that, he has drawn up plans to launch the complaint at the commission’s initiative – and not based on a complaint from a company – setting a new precedent in EU trade defence.

Trade analysts in Brussels said that some member states had also expressed reservations about the case after receiving complaints from Beijing. Germany is understood to be wary of igniting a trade war with China before a planned visit by Chancellor Angela Merkel in August.

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