The European Union is preparing to investigate the imports of mobile networking gear from China for anti-competitive practices, a move that's likely targeted at telecommunications equipment companies Huawei Technologies and ZTE.
China has also warned the EU against any protectionist or restrictive measures.
The investigation will focus on China's alleged dumping and subsidizing of telecommunications-related products, EU Trade Commissioner Karel De Cucht said in a statement on Wednesday. No companies were specified, but the commission had reportedly determined last year that both Huawei and ZTE received preferential financing from the Chinese government.
The European Commission, however, will first try to negotiate with Chinese authorities to reach an "amicable solution" before launching the investigation. It estimates that Chinese exports of telecommunications equipment to the EU reach a value of over €1 billion per year.
"We hope the EU will proceed with protecting the stable development of trade relations between China and the EU, and not take protectionist measures or restrictive actions." China's foreign ministry spokesman Hong Lei said on Wednesday.
Huawei responded on Thursday, stating that the company "plays fair" in all markets, and wins business via its technology and services, not through pricing or subsidies.
"Huawei currently has broad cooperation with European enterprises in the field of innovation, which is creating considerable value for all parties," the company said in an email. In 2011, Huawei purchased €2.9 billion in products and services from Europe.
ZTE has yet to receive a formal notice from the EU, but it denied dumping products or receiving illegal subsidies from the Chinese authorities, said company spokesman David Dai Shu on Thursday. While the company does receive some financial support from China, the subsidies are small and on par with the backing other European vendors receive from their home countries, he added.
ZTE, however, said its market share of Europe's telecom infrastructure business is small, and expects the investigation to have little affect on the company.
"From our point of view, we hope the (EU) government will establish a healthy and fair environment for all vendors," he said.
The European Commission, the EU's executive body, is launching the anti-dumping and anti-subsidy investigation "ex officio" on its own initiative, without an official complaint from an EU industry. Huawei said this was an unprecedented move.
The Commission described the option to investigate ex officio as "particularly important as it offers a 'shield' when the risk of retaliation against European companies asking for trade defence instruments is high."
If the investigation is carried out, inspected products would cover mobile telecommunication networks used by carriers to transmit and receive voice and data.