Viktor Orbán has turned Hungary into the primary dwelling for Chinese language capital in Europe, capturing greater than 1 / 4 of all Chinese language funding coming into the continent over the previous two years.
The outsized share, together with a wave of funding into EV factories, has been a fillip to an in any other case struggling Hungarian financial system hit by the EU withholding about €20bn of funding over rule of regulation considerations.
Orbán’s problem now could be pulling off the diplomatic gymnastics required to concurrently stay an ally to Xi Jinping and Donald Trump’s incoming administration of China hawks, whereas managing the specter of a persistent decline in EU funds.
Even in opposition to the backdrop of his rule of regulation dispute with Brussels, Orbán has exacerbated tensions with different EU capitals by sustaining sturdy diplomatic ties with each Beijing and Moscow.
Márton Nagy, financial system minister and a former adviser to prime minister Orbán, informed the Monetary Instances that China’s investments had helped keep the nation’s automobile business as “a very strong core” of its financial system, which is ultimately anticipated to account for nearly a 3rd of GDP.
China’s most essential EV and battery teams — BYD and CATL — had been amongst these scouring the EU for native manufacturing websites, even earlier than Brussels put new tariffs on Chinese language exports.
BYD final yr selected the southern Hungarian metropolis of Szeged as the placement for its first massive manufacturing unit in Europe. CATL is constructing a €7.3bn plant within the east of the nation.
Whereas each Chinese language firms are privately owned, they’ve shut ties with Beijing and have been key beneficiaries of a supportive Chinese language industrial coverage for years.
Hungary emerged as an ideal companion for the Chinese language firms, with decrease labour and land prices than different elements of Europe coupled with the backdrop of heat political ties between Beijing and Budapest.
China upgraded Hungary to considered one of its closest worldwide companions in Might, with Xi pledging to spend money on key infrastructure tasks throughout a go to to Budapest.
Nagy stated each BYD and CATL would open their doorways by the second half of subsequent yr, together with a string of different Chinese language greenfield investments, with their influence on the financial system and wages being “felt as soon as the work starts”.
The paraphernalia throughout Nagy’s desk, together with dragons and a reputation plate that includes Chinese language script, had been an indication of Budapest’s tireless efforts to court docket China.
With automobiles produced within the EU in a position to keep away from tariffs of as a lot as 45 per cent levied by Brussels on exports coming straight from China, Nagy stated the EU’s “unfriendly step” was additionally “a rather stupid step”.
“Such duties can be avoided if production is localised,” he stated. “And just because we [impose a duty], how will our own car industry be stronger in two, three or four years? We would have to give a lot of subsidies to the sector, research and development funds, to boost domestic production. But there is no sign of that.”
Hungary’s authorities believes China’s investments will provide a lifeline to an financial system dealing with extreme challenges which have positioned it among the many weakest performers within the EU.
Hungary is now in recession, with GDP falling by 0.7 per cent within the third quarter. The federal government expects its funds deficit to hit round 4.5 per cent of GDP this yr, nicely over the EU’s 3 per cent restrict.
Analysts suppose the 4.5 per cent determine might show over-optimistic and are involved that Orbán, dealing with re-election in 2026, will additional weaken the fiscal state of affairs by elevating spending to ranges the nation can’t afford.
Each the financial system minister and Orbán consider that Budapest’s shut ties with Beijing could be maintained whereas holding Donald Trump onside, regardless of the US president-elect’s threats to levy a tariff of 60 per cent on all imports from China into the world’s largest financial system.
“Trump is a businessman, he will make deals,” Nagy stated. “He will make a good deal for the US . . . for us the focus is on Europe-China relations. Don’t forget that Biden already levied these tariffs and the trade war has already started.”
Orbán informed public radio station M1 final month that sustaining a balancing act between east and west was his financial coverage’s “strategic foundation” and claimed others, together with the US, will pursue Chinese language ties as nicely. “[China] is here, strong, developing, our task is to make good deals with them.”
Ilaria Mazzocco, a senior fellow on the Heart for Strategic and Worldwide Research in Washington, stated Budapest’s technique had been “effective”, attracting funding not simply from Chinese language producers however different EV suppliers.
“There is clearly much more political involvement,” Mazzocco stated. “This is no longer just a business decision.”
However others suppose China is unlikely to have the ability to plug the gaps left by Brussels, with the EU additionally in a position to grant funds for social tasks that produce no monetary acquire.
“Chinese FDI alone will not offset Hungary’s current shortfall in EU funds,” stated Gregor Sebastian, a senior analyst at Rhodium Group.
Hungary used to obtain round €5bn in annual EU transfers, value about 2.5 per cent of GDP, in response to the European Fee. Since confirming the BYD funding in February, China has made no new spending pledges to Hungary.
An absence of funding in public infrastructure has additionally made the federal government susceptible to political assaults.
One casualty has been Hungary’s battered railway community, the place about €10bn-worth of principally EU-funded investments have been cancelled, in response to railway skilled and opposition politician Dávid Vitézy. The home funds is just too strained to interchange them.
“We could have had a golden age in the rail sector in this decade,” Vitézy informed the FT. “What is left is next to nothing.”
The one main railway building challenge below manner is a Chinese language-funded rail line traversing sparsely populated areas between Budapest and the Serbian capital Belgrade. It’s a part of Beijing’s $1tn Belt and Street world infrastructure initiative and can principally serve Chinese language cargo.
Orbán’s fiercest opponent forward of parliamentary elections in 2026, Péter Magyar, of the centre-right Tisza celebration, has seized on the railways’ dire state, saying earlier this yr they had been in “an unprecedented crisis” after a heatwave pushed the prepare system close to to break down.
A number of trains derailed on malfunctioning previous switches, narrowly avoiding accidents. “This train has gone,” he stated. “Hungarians won’t wait.”
