Agreement covering subsidies may be reached as early as next week

China and the European Union aim to end a long-running telecom row next week, the EU's trade chief said on Friday, potentially easing tensions between two of the world's top trading powers.

Reuters reported this week that Europe was close to a deal with Beijing on defusing the issue of what Brussels says are illegal subsidies to Chinese makers of equipment for mobile telecom networks.

European Trade Commissioner Karel De Gucht confirmed the progress at a media briefing in Berlin: "We are confident that the subsidy proceedings against the network providers can be resolved next week."

He gave no details but the EU and China are understood to have prepared the draft of a deal ahead of a meeting between Premier Li Keqiang and senior EU officials at a summit in Milan, Italy on Oct 16-17.

Chinese telecom exports to the EU are estimated to be worth around 1 billion euros ($1.3 billion) every year and often bring Chinese companies into competition with European companies like Ericsson AB, the world's biggest mobile telecom equipment maker, Nokia Siemens Networks and Alcatel-Lucent SA.

According to an EU document, the swift rise of Chinese telecom manufacturer Huawei Technologies Co Ltd in the European telecom equipment market to a 25 percent market share from 2.5 percent in 2006, could only have been achieved with State aid that global trade rules say are illegal.

Beijing is considering a deal in which China promises to limit its export credits to Huawei, China's No 2 telecoms equipment maker, and the smaller ZTE Corp, people close to the talks told Reuters.

Both sides would also agree to monitor the market share of Chinese telecom companies in Europe and European companies in China. They would also cooperate on industrial research and standardization in the telecoms sector.

Resolving the telecoms issue could dramatically change the tone of the bilateral relationship.