Xi and Chinese electric cars enter Hungary

As Chinese President Xi Jinping prepares for a visit, Hungary's far-right government is courting Chinese investment in electric vehicles. This policy brings economic benefits but could endanger European unity.

SZEGED, Hungary Amid the great rolling plains, land is being cleared for a giant new building: a Chinese-owned electric vehicle factory, courtesy of BYD. The 501 million investment in a 300-hectare industrial park is expected to be completed in 2025.

Although BYD's investment promises to promote green energy and economic growth, important questions remain unanswered. Is this factory a harbinger of progress or a pawn in a larger game of geopolitical chess? Is China using Hungary as a Trojan horse to weaken the EU? The Szeged plant represents the second major Chinese automotive investment in Hungary and critics fear it could be a harbinger of an offensive by Victor Orbn, the pro-Putin, pro-Chinese European leader will undermine EU unity and torpedo the continent's most important auto industry

Hungary is important to China. Chinese President Xi Jinping arrives in Budapest this month after visiting France and Serbia. Budapest will take over the rotating presidency of the Council of the European Union in July.

When Hungarian Foreign Minister Peter Szijjarto visited Beijing last month, Chinese Foreign Minister Wang Yi urged Budapest to promote a rational and friendly view and support a more pragmatic China policy from the EU. In response, Szijjarto said Hungary opposed decoupling with China and welcomed Chinese investments. Earlier, Szijjarto rented BYD's decision to build in Szeged, claiming that the entire city will receive new impetus and be propelled into a new dimension.

For Hungary, the automobile industry is the economic engine of the country. Generous subsidies and tax breaks attracted powerful German automakers. Audi built a factory in Gyr, Daimler-Benz a Mercedes factory in Kecskemt and BMW in Debrecen. The automotive industry accounted for more than a fifth of the country's production in 2023, employing 884,000 Hungarians. Most production is exported, with sales increasing from 13.3 billion in 2014 to 25.4 billion in 2023.

Hungary was the first EU leader to sign a contract under China's Belt and Road infrastructure initiative. In 2023, China became the largest investor in the country with 10.7 billion. Hungary is home to Huawei's largest supply hub outside China, despite US pressure to ban the tech company.

Electric vehicles are essential. The Chinese CATL is building a $7.3 billion electric vehicle battery factory in the southern city of Debrecen. It plans to start production in 2025 and supply batteries to BMW, Mercedes-Benz, Stellantis and Volkswagen. Chinese observers say another factory could be announced during Xi's visit.

It's not all that drives smoothly. In Szeged, the future BYD factory is at a standstill, with archaeological excavations blocking construction. During a recent visit, the only trace of a building was the presence of excavators preparing several long trenches. Environmentalists are protest the CATL battery factory, fearing it could cause water pollution. In Hungary, unemployment is low, around 5%, and the government hates immigrants, leading to fears of a labor shortage.

Chinese investments are not free either. For the CATL factory, the Hungarian government is spending nearly 2 billion on infrastructure. For BYD in Szeged, the government has promised 122-125 million euros for infrastructure and millions more in state aid. Although details remain confidential, Prime Minister Orbn declared as they would be for road networks, public service networks and community services.

Brussels is concerned. The European Commission is investigate whether aid to factories in China distorts the EU single market. Even if the investigation is not expected In order to impact the construction of the factory in Hungary, customs duties could be imposed on BYD vehicles produced in China. Michael Shu, European President of BYD rejects accusations of illegal subsidies, citing the company's unique technology and management efficiency for its ability to offer low-cost vehicles.

China's new electric vehicle factories in Hungary are more than just automotive investments. They are driving China's electric vehicle offensive into the heart of Europe and threatening to give Hungary's nationalist leader another opportunity and motivation to block a Europe-wide agreement on how to tackle the Chinese challenge.

Greg Pal is an intern for the Transatlantic Defense and Security Program at the Center for European Policy Analysis. He is currently a master's student at Georgetown University in the German and European Studies program.

Peter Roberto is Program Assistant for the Transatlantic Defense and Security Program at the Center for European Policy Analysis.

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