Hungary’s Orbán courts China and wins a surge of clean car investments

Hungary is bucking calls from the European Union to loosen ties with China — and it’s paying off.

Hungary is reportedly in the running, along with Germany, for hosting Chinese carmaker BYD’s first European factory; the company is set to make an announcement by the end of the year.

Chinese battery-maker CATL last year decided to build a €7.3 billion battery plant in the eastern city of Debrecen. Other Chinese companies in the electric vehicle supply chain — Nio, Eve Energy, Huayou Cobalt, BYD and Ningbo Zhenyu Technology — have all announced new factory projects over the last months.

The Hungarian government says China has been the country’s leading foreign investor since 2020, and Budapest wants more — which is why politicians are ensuring that relations with Beijing stay smooth.

Hungarian Prime Minister Viktor Orbán was the only EU leader to attend October’s Belt and Road Initiative forum, with Chinese President Xi Jinping calling him Beijing’s "friend."

The Hungarian government, Orbán said, “shall not accept any kind of external ideological pressure” and will always follow national interests.

Foreign Minister Péter Szijjártó was even more explicit in June, stressing that any effort to edge away from China would damage Europe.

“Both decoupling and de-risking would be a suicide committed by the European economy,” Szijjártó told CNBC at the World Economic Forum’s annual conference in Tianjin, China. “How could you decouple without killing the European economy?”

Hungary has not only joined the 14+1 format, a grouping linking China with Central and Eastern Europe (which used to to be the 16+1 format before some EU countries quit). It’s also signed on with the Chinese Belt and Road initiative, while blocking EU statements from condemning China over human rights issues.

"The Hungarian government pictures itself as a bridgehead for China," said Dóra Győrffy, an economics professor at the Corvinus University of Budapest. This should be "very concerning" for the rest of the EU, she said.

European Commission President Ursula von der Leyen and European Council President Charles Michel are in Beijing this week to press Chinese leadership on the country’s massive trade surplus with the EU. The Commission has also launched a probe into improper subsidies for Chinese EVs.

Meanwhile, the Hungarian government’s push for more investment from China is raising warnings that economic benefits could carry a political price.

“Like Russia, China can also use any kind of economic vulnerability for blackmailing,” said Győrffy.

Hungary has staked its economic fortune on cars — and now, on the transition to electric vehicles. The automotive sector accounts for about 6 percent of Hungary’s gross domestic product, while automotive suppliers account for an additional 8 to 9 percent.

And it’s not just Chinese companies. All three of Germany’s big car firms have Hungarian factories, and companies based in South Korea and Japan are also present — attracted by Hungary’s skilled but inexpensive workforce and its close links to the rest of the EU market.

While such economic arguments account for a significant amount of the automotive investments, Budapest’s loyalty to Beijing carries an additional political benefit.

Although investment decisions are long-planned affairs, the announcement by CATL that it would set up shop in Hungary was made on August 12, 2022 — one day after Estonia and Latvia left the 16+1 format.

“This is a type of reward Hungary gets for being close to China politically,” said Jakub Jakóbowski, China expert and deputy director and at the Warsaw-based Centre for Eastern Studies think tank, which is financed by the Polish government.

But that’s a price Hungary is willing to pay.

Economic Development Minister Márton Nagy was in Shanghai last month, where he celebrated the pace of Chinese investment in Hungary.

"We are proud that Hungary is the leading destination for Chinese business investment in Central Europe," he said. "The success of the government’s policy known as ‘Eastern Opening’ is seen in the fact that by the end of 2023, more than one third of foreign direct investment will have come to Hungary from Eastern countries."