Hungary is becoming Europe’s electric vehicle hub – by courting Chinese carmakers

The fast rail project has been controversial, with the European Commission suspicious of its lack of transparency. The BYD investment appears to demonstrate that the rail project will nevertheless generate new industrial development for the economies of central and eastern Europe.

BYD’s announcement has been described by some commentators and a range of voices in the Hungarian community as a “China threat”. Such responses reveal a combination of economic competitiveness and geopolitical fear.

At a recent debate hosted by the conservative Common Sense Society, even supporters of Hungary’s nationalist government were almost unanimous in considering that the risks of major Chinese investments outweighed the benefits. It’s part of a trend of European opposition to economic interdependence with China.

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To be sure, BYD’s investment is a wake-up call for European carmakers. As the production of BYD’s new cars will be within the European Union, they will not be subject to any measures the EU may take against Chinese exports after its investigation into China’s subsidies for its carmakers. Expect Brussels to closely investigate the subsidy package that the Hungarian government is negotiating with BYD.

European companies have been happy to invest in China for their global production in recent decades. The shoe is now on the other foot, as advanced Chinese companies seek to invest in Europe, which promises to be the biggest market for Chinese cars outside China. The automotive industry is deeply interdependent, as China is the third biggest market for EU vehicle sales.

While many in the EU have followed the United States in viewing Chinese investment through a geopolitical lens, with much talk of “ de-risking”, Hungary’s government has taken a different path. Its audacious leader, Viktor Orban, has long pursued a policy of positioning Hungary as a meeting point between the East and the West.

An EU and Nato member, Hungary is seeking the best of both worlds by taking advantage of its location to attract Asian investors seeking a low-cost and central manufacturing site.

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Just as Hungary has for decades welcomed investment from Japan and South Korea, it is doubling down on its strategy of attracting Chinese investment. The BYD project is likely to be the biggest Chinese investment yet, following a major project by China’s Contemporary Amperex Technology (CATL) and other EV battery manufacturers establishing themselves in Hungary in recent years. The small central European nation has attracted around €20 billion (US$21.9 billion) of EV-related investments in the last five years.

Hungary is an attractive destination for Chinese firms because it has a China-friendly government unlikely to create any political risk. It has competitive labour costs, a central position in the EU market and, importantly, a cluster of established automotive manufacturers, including prestige German carmakers BMW, Audi and Mercedes. All are in a rush to roll out new EVs to meet the EU’s goal of zero emissions from cars by 2035.

Expect more Chinese investment to flow to Hungary. Its capital, Budapest, already hosts one of Europe’s largest Chinatowns, and is a major logistics hub for Chinese tech products, including those of Huawei Technologies. With BYD making it the hub for its European EV production, Hungary is poised to become a centre of green automotive production, which might turn out to be a smart strategy that enables the country to find its way in a contested neighbourhood.

David Morris, a senior fellow at the Centre for China and Globalisation, is a former diplomat who has recently completed a PhD at Corvinus University of Budapest

South China Morning Post