China and the European Commission appear headed for a stand-off over the subsidies the Chinese government offers to telecom vendors such as Huawei and ZTE.
The EC is preparing a major trade case accusing the government of offering illegal state subsidies, and vendors of offering products in the European market at below cost, Financial Times reported.
Sources told the newspaper that the EC has been collecting evidence in the case for months, and that it is in the process of finalizing a formal case that could be submitted as early as next month.
If China is found to have illegally offered subsidies, the nation's vendors could be slapped with punitive tariffs on export sales into the EU.
Should a case be filed, it would be the first time the EC commenced a trade investigation on its own, rather than in response to a complaint by a European company or industry group.
The EC appears to be preparing to act unilaterally because of the belief that companies are afraid to file complaints about the practice, due to fears of economic retaliation by China.
The EC has recently been seeking to crack down on what it sees as illegal financial support offered by the Chinese government.
In February, the EC filed a trade case over Chinese subsidies in the steel industry, and earlier this month the body raised the duties on imports of glossy paper from China.
In March, the EC also joined forces with the US and Japan to file a formal WTO complaint against China's restrictions on the exports of rare earths, the difficult to mine metals that are vital to the manufacturing of mobile phones and many other technology products.