The European Commission will consult industry and its trade partners in response to Beijing's demand that trade barriers against it be relaxed, opening a politically charged debate on Wednesday that will shape future ties with China.
The European Union's 28 commissioners discussed for the first time the issue of granting China "market economy status" from December, which Beijing says is its right 15 years after it joined the World Trade Organisation.
That status would make it harder for Europe to impose anti-dumping duties on Chinese goods sold at knock-down prices, changing the criteria for determining a fair price.
"This issue has to be looked at from all important angles given the subject's importance for international trade and also for the EU's economy," Commission Vice President Frans Timmermans said after the commissioners' meeting.
"If there are measures to be taken related to this issue then, of course, these individual measures will have to be assessed for impact. Those are the rules, but I can't say yet what those measures will be."
In a statement, the Commission said any decision would have an impact on the European economy, but gave no details. The EU is China's biggest trade partner, and China is second only to the United States for the EU. Chinese imports to the EU were worth 302 billion euros ($330 billion) in 2014, more than triple their level at the start of the century.
The EU executive, which handles trade issues on behalf of EU governments, said it would fully involve European industry and liaise closely with its biggest trade partners on the issue, acknowledging that would take some time. The bloc is now in a third year of talks with the United States on a free-trade deal.
US Trade Representative Michael Froman said Washington was consulting with Brussels on the matter but that any change in China's European trade status was ultimately up to the EU.
"On the market economy status, we are not encouraging the EU to take any particular position. We've not made any decision ourselves on any particular position," Froman told a trade forum held by the Wilson Center, a Washington think tank.
Froman said US officials were interested in learning more about the EU's perspective on China's evolution toward a market economy.
The bloc's decision will be taken with EU governments and the European Parliament. Officials have told Reuters one compromise might be to agree on temporary protection against cheaper Chinese exports to protect EU industry.
The steel industry in particular has been a fierce opponent of any loosening of trade barriers against China. The industry association Eurofer, which has lodged a series of complaints against China, said Chinese steel production over capacity was some 400 million tonnes, more than twice the total EU steel production of 170 million tonnes.
Chinese steel imports into the EU have doubled in the past 18 months, with prices falling by 40%, it said.
Aegis Europe, a group of about 30 European manufacturing sectors, including metals, chemicals, ceramics and textiles, said Beijing's aggressively export-led economy encouraged its enterprises to dump on foreign markets.
Granting market economy status to China would have a huge negative impact on European industry, it said, citing a study saying that to do so would put 1.7 million to 3.5 million European jobs at risk.