* Lawmakers, Commission tussle over new trade defence rules
* European firms say China benefits from credits, subsidies
BRUSSELS, Feb 5 (Reuters) - The European Parliament pressed the EU's trade chief on Wednesday to build stronger defences against cheap imports from China, saying the European Union needed broad new powers to stand up to the world's second-largest economy.
The European Union's trade chief Karel De Gucht is seeking to update the tools that Brussels uses to fight unfair trade practices and that date from before China's transformation into a powerful exporter. Some in Europe say the rules are too soft.
EU lawmakers want to go further than a proposal by the European Commission, which handles international trade matters on behalf of EU countries. They want to make it easier for small companies to take on countries that flaunt world trade rules by exporting goods at below the cost of production.
Legislators also want to do away with a European rule that limits punitive sanctions to only what is absolutely necessary to correct any injury caused by illegally subsidised imports.
"The parliament's position is a lot more radical," said Christofer Fjellner, the lawmaker who is leading negotiations with the Commission on the issue. "I know it has been very controversial but many member states are opposed to the Commission's original proposal," he said, speaking after votes in the parliament in Strasbourg.
Although the rules do not mention China by name, the majority of the EU's trade disputes are with Chinese companies.
Trade between Europe and China has doubled since 2003 to more than 1 billion euros ($1.3 billion) a day, but relations are often tense. Of the 12 cases that ended in the imposition of punitive duties by the European Commission last year, seven involved China.
The most serious was a multi-billion-euro dispute over Chinese exports of solar panels, the biggest ever trade clash between Brussels and Beijing, one that was resolved only after both sides agreed a minimum price for the panels.
A group of European solar equipment makers including Germany's Solar World said last year that China's trade practices had already meant 15,000 lost jobs and 30 bankruptcies in Europe's solar sector.
When drawing up the new rules, De Gucht is eager not to send the wrong message or make trade defence instruments seem protectionist and upset often delicate ties with partners ranging from Beijing to Buenos Aires.
Officials believe the Commission's proposal is enough to give Brussels more leverage against Beijing and to ease firms' fears of retaliation in cases involving the powerful Asian commercial partner.
"The strength of the EU's trade defence instruments lie in their balance and proportionality in the application of measures," De Gucht told the parliament. "Balance remains the key word in this modernisation process."
Three-way negotiations between the parliament, Commission and EU governments are expected to start next month, with a view to agreeing the rules before De Gucht's term ends later this year.
(Editing by Mark Heinrich)