* EU partly drops threats against China in dispute
* EU's De Gucht says illegal subsidies remain a problem
* Seeks resolution by EU-China meeting in June/July
* Mobile network equipment imports worth 1 bln euros/year (Adds value of imports, background on trade disputes)
BRUSSELS, March 27 The EU's trade chief partially defused a long-running telecoms trade dispute with China on Thursday by dropping part of its complaint and offering negotiations in the coming months to reach a full solution.
Karel De Gucht said the European Commission would no longer pursue an anti-dumping investigation into imports from China of equipment for mobile telecom networks, worth an annual 1 billion euros ($1.38 billion) per year.
The Commission, the EU's executive, would still look into the issue of illegal subsidies, although would not formally launch an investigation while talks with Beijing continued.
"I would like to have a solution by the next economic and trade committee meeting with China that we should have (at the) end of June or beginning of July in Brussels," De Gucht said.
The main Chinese exporters are world No. 2 telecoms equipment maker Huawei and the smaller ZTE.
De Gucht said the Commission's move reflected its belief that the essence of the problem with the Chinese competition was subsidies.
However, he also said the decision not to pursue the anti-dumping part of the action was a significant step towards resolving the entire issue.
The softening tone follows China's decisions in the past week to end investigations into imports of EU wine and polysilicon, used in solar panels, and comes days before the visit to Brussels of Chinese President Xi Jinping.
De Gucht said last May that the Commission had decided in principle to open both an anti-dumping and anti-subsidy case against China on the telecoms issue, although no formal investigation was launched.
"We have decided to drop the telecoms case with respect to anti-dumping," De Gucht, the EU's trade commissioner, told a news conference on Thursday, referring to EU accusations that Chinese telecom equipment makers sell their products at below the cost of production in Europe, breaking world trade rules.
"There are a number of demands we would like to see fulfilled before we can decide on the subsidies case," he said, adding this was where "the real problem" lay.
Brussels believed European manufacturers Ericsson , Nokia Siemens Networks and Alcatel-Lucent have suffered as a result of cheap Asian imports but that the companies would not make formal complaints for fear of Chinese reprisals, according to EU documents seen by Reuters.
Last year's threat of action came at a time of heightened EU/China trade tension, with the chief cause of conflict the Commission's plan to impose duties on 21 billion euros of imports from China of solar panels.
China and the European Union eventually agreed last July that the EU would allow in a certain number of panels from China, equivalent to about half of EU demand, at a set minimum price.
The EU now has 31 ongoing trade investigations, 20 of them involving China, although these cover imports of no more than a few hundred million euros. ($1 = 0.7254 Euros) (Reporting by Philip Blenkinsop and Robin Emmott; editing by Tom Pfeiffer)