European and Chinese trade ministers stepped up a war of words over hi-tech subsidies Thursday in a spat that increasingly risks legal action and a potentially damaging trade war.

"There is a problem, and we should try to resolve it together, otherwise it will end up before the WTO," European Union trade commissioner Karel De Gucht told reporters during a break from talks with Chinese Commerce Minister Chen Deming in Brussels.

The Belgian later backtracked, saying he did not mean to suggest going to the World Trade Organization for arbitration.

Instead, he said the EU would be within its rights to deploy its own Trade Defence Instruments (TDIs) to counter what it feels are unfair subsidies.

"If we start a TDI case, we only do it on basis of solid arguments and legal grounds," De Gucht said.

"It is very important that China and the EU together address the problem of advanced technologies and how we handle this."

After what he described as "very candid" talks, Chen responded that "in times of crisis, we need to avoid abuse of trade instruments."

He underlined: "Our leaders agreed at the G20 not to propose new and further restrictive trade measures" and that the way to resolve such differences was for "quiet discussions before small things turn into big problems."

China is the EU's second-largest export market -- while the EU is China's biggest.

The case concerns industrial allegations of Chinese state subsidies making it easy for leading telecoms manufacturers Huawei and ZTE Corp to undercut European competitors, according to diplomats with EU states who discussed launching formal legal action with De Gucht over a closed lunch during trade ministerial talks.

The issue is sensitive for Germany, one EU diplomat said, because of major manufacturer Siemens. Chen cited Nokia-Siemens as taking "a very big market share in China."

Germany is responsible for almost half of EU exports -- bilateral trade amounted to nearly 430 billion euros ($532 billion) last year, with a record 12.6-billion-euro ($15.6-billion) flow logged in the latest figures from March.

He called on other EU governments to match an initiative by the British government, which he said has supplied Beijing with a long list of major projects it needs financed.

Chen pledged to "keep open procurement access," another sore point for European governments over the past year, and "to buy more from Europe to make our trade more balanced" amid the "festering eurozone debt crisis."