The European Commission is preparing to launch a major trade investigation into Chinese networking companies Huawei and ZTE, after it emerged that they may have benefited from illegal state subsidies.

The commission has been piecing together the case for months, according to a report in the Financial Times, and a formal case could be brought as soon as next month.

EU officials reportedly told representatives from member states in a closed-door meeting last week that there is “very solid evidence” of illegal Chinese subsidies to the firms. They also accused Huawei and ZTE of selling products in the EU below cost – a practice known as “dumping”.

If the Chinese companies are found to be guilty of the charges, they could face punitive tariffs when selling their products into the European region. Neither firm had responded to Techworld's request for comment at the time of publication.

The case would mark the first time the European Commission has launched its own trade investigation, rather than responding to a complaint from a member state or a company. EU trade commissioner Karel De Gucht, recently said that such cases were necessary to counter Beijing’s practice of silencing European companies with threats of retaliation.

The news comes just as Huawei steps up its push into the UK market. Only last month, the company signed a managed services contract with mobile operator Telefónica to plan, implement and manage its core transmission, mobile access and network in the UK.

Meanwhile, ZTE has been showing off its WDM-based optical networking equipment, capable of transporting data at 1.7Tbps. The company also plans to be among the first device manufacturers to launch both smartphones and tablets based on Intel's Atom smartphone chips.

Huawei recently filed its own antitrust complaint with the European Commission against wireless R&D company InterDigital, claiming the company is abusing its patents to force Huawei into a "discriminatory, unfair, and exploitative" license.