Is the EU really going to take on China?

The other shoe has been slow to drop since the Financial Times reported that the European Union was preparing a major WTO case against Huawei and ZTE.

That’s not so unusual. China usually takes a couple of days to figure out its response in such sensitive issues. Then it fires with all barrels.

Yet while the FT says the EU could bring a formal case as soon as next month, I’m not completely convinced this isn’t a kite-flying exercise.

Apart from being highly politicised, and sure to invite Beijing retribution, the EU went through all this in its investigation into the dumping of Chinese modems 18 months ago.

It dropped that at the request of the complainant, Belgian firm Option, but in a subsequent confidential report it concluded that vendors enjoyed “massive” state support. Yet it did nothing.

This time around, the EC has “very solid evidence” that the two firms “benefited from illegal government subsidies and had sold products in the EU below cost,” the FT says.

This time around the EU is also in the middle of an existential financial crisis. It begged some cash from Beijing a few months ago. It isn't hard to imagine the conversations taking place in Brussels and Beijing right now.

For what it’s worth, Huawei has issued an email saying it has not received any advice about an investigation and denying that it has received any illegal subsidies.

If the inquiry does go ahead, it wouldn't be the worst thing that could happen to Chinese vendors, or China for that matter. It would establish the nature and extent of Chinese state aid and set some clear red lines.

It's often forgotten - especially by Chinese officials - that one of the reasons that China joined the WTO in 1999 was to impose market disciplines on its economy. Here's a chance to do that.