Beijing has threatened retaliation if Brussels goes ahead with a trade case against two Chinese telecom equipment companies. It is a blow to the hopes of a meeting with EU trade officials aimed at smoothing over the trade dispute, reports the Financial Times.

The EU accused Huawei and ZTE Corp of benefiting from illegal state subsidies from Beijing, which aided their business development and allowed them to quickly gain market share. Both companies have denied the accusations. China warned that it would set up its own investigation into subsidies granted to European agriculture, automotive, renewable energy and telecommunications.

The EU trade commissioner, Karel De Gucht, who initiated the trade case against Beijing, said that Brussels would wait for China’s next move to avoid a formal complaint. Another trade confrontation in the solar industry could aggravate tensions. European solar companies are preparing to file another complaint against Chinese competitors for using illegal government subsidies to lower their prices.

Some member states of the Union have expressed their concern for their own businesses as the trade dispute could further severe trade ties with the world’s second largest and fast-growing economy.