Hungary’s bet on China: Smart move or desperate attempt?
Hungary’s bet on China: Smart move or desperate attempt?
WRITTEN BY DR TAMÁS MATURA
22 February 2024
Over the past fifteen years, Hungary’s Prime Minister, Viktor Orbán, has been China’s most vocal supporter in the EU. As an illiberal leader, he sees a natural ally in Beijing. Playing a balancing act between the East and the West, Orbán hopes to boost his international political clout and the economic development of Hungary by cosying up to other illiberal world leaders such as China’s Xi Jinping.
However, since he most recently came to power, the world has substantially changed, with the era of a relatively calm international environment and rapid global economic growth of the 2010s over. His attempt to outsmart the major powers, referring to the West and China, may lead to a situation in which Hungary falls between the two camps, where Western investors lose confidence while Chinese investors may not live up to their promises. The following article reviews Hungary’s China policy and China’s economic expansion in Hungary with a special focus on the electric vehicle (EV) industry.
The Sino-Hungarian ‘bromance’
Back in 2003, Hungary was the first Central European country to initiate a rapprochement with China, following decades of low-profile relations. After his return to power in 2010, Prime Minister Orbán has not only maintained the previous socialist government’s pro-China policies but has also elevated the relationship to even higher levels, including launching the Eastern Opening Policy and signing a comprehensive strategic partnership with China in 2017.
Under Orbán’s rule, Hungary has been one of the few countries ready to use its leverage in the EU to help China on certain political issues. Budapest vetoed and blocked numerous EU proposals that condemned Beijing for its alleged human rights abuses and its South China Sea-related activities, to name a few such instances. Such pro-China policies have contributed to creating Hungary’s ‘black sheep’ image in the West. The situation, however, has escalated in recent years, as most EU countries have started distancing themselves from China due to its actions during the COVID-19 pandemic, and over Beijing’s implicit support of Russian aggression against Ukraine.
Playing a balancing act between the East and the West, Orbán hopes to boost his international political clout and the economic development of Hungary by cosying up to other illiberal world leaders such as China’s Xi Jinping.
This is even more visible in Central Europe, with disappointing returns of the 16+1 cooperation also distancing member states from previous pro-China policies. Established in 2012, the Baltic states left the format in 2022, while other countries, like Poland, Czechia and Romania have lowered their engagement to a minimal level. Consequently, Orbán has become China’s last remaining ‘friend’ in the EU, and he is still ready to use his diplomatic and economic resources to support Beijing’s interests in the EU when necessary.
Orbán’s diplomatic position has reached a strategic turning point, however. So far, Budapest has been careful enough to offer support to Chinese political interests as long as they had minimal negative effects on European (that is, German) economic interests. For instance, blocking EU statements regarding human rights abuses in China did not impose any significant cost on Hungary, while supporting European business interests vis-à-vis China also had a minimal impact on the Hungarian economy (since, until recently, Chinese economic presence had been marginal in the country).
However, the enormous inflow of Chinese capital (well over USD 10 billion) into Hungary over the past two years is about to change Budapest’s strategic calculus, as supporting Chinese economic interests in the EU is becoming important to Hungary. The EV sector is the most obvious example of such a change since the presence of Chinese producers in Hungary clearly goes against the interests of European automakers. The question is, how far is Orbán willing to go in supporting Chinese economic interests in the EU against the will of Berlin and other major Western capitals?
The long-awaited inflow of Chinese investors likely means that Orbán feels vindicated because, after a decade, his pro-China policies have finally started to pay off. As the Hungarian government is convinced that it could play a bridge between the East and West to reap the benefits of both worlds, it refuses to understand that the halcyon days of amicable or at least stable relations between the EU and China have seemingly come to an end. It is important to point out, though, that a brief look into Hungarian twentieth-century history shows us that whenever the country’s leadership thought it could outsmart and outmanoeuvre major powers, it ended up on the losing side.
Should the EU be concerned about Chinese influence?
Since the beginning of the 16+1 cooperation, the EU and some of its most influential member states had been concerned about the rise of the Chinese presence and influence in Central Europe, as it seemed to them Beijing was trying to divide and conquer the EU. The past five years, however, have shown that China’s clout was more of a mirage than actual reality. Since most politicians in the region felt that Beijing had fallen short when it came to delivering many of its promises, pro-China attitudes have started to fade since the end of the last decade.
This is even more true if we look at the status of the Belt and Road Initiative (BRI) in Europe. Just a couple of years ago, countries around the EU were either enthusiastic about or worried by its potential impact. Today, it is not an easy job to compile a list of BRI-related projects and achievements in the EU. The only tangible result in Central Europe will be the Budapest-Belgrade railway line once the Hungarian section has been completed (currently expected for 2025, notwithstanding numerous delays to the project including the recent suspension of construction due to the failure to meet EU technological standards).
However, just like in the case of other Chinese investments in the country, the economic reasonability of the project is surrounded by question marks. It seems easy to argue that newly established Chinese factories will create demand for transportation services along the railway, but none of these are located along the vicinity of the line connecting Hungary and Serbia. Even Chinese multinational manufacturing company BYD’s plant will be 50km away from the railroad line, which means that taxpayers may need to pay further EUR billions as the Hungarian government may need to build infrastructure to connect the factory to the transportation corridor.
Chinese EV investments in Hungary: Threat or opportunity?
The total amount of recently announced EV-related Chinese investments in Hungary is around USD 10 billion, which catapults the PRC to the list of the largest investors in the country. Meanwhile, whether these investments would benefit Hungarian citizens is questionable. The government argues that, given the heavy reliance of the economy on the automotive industry which produces 33 per cent of the manufacturing exports of the country, it is a necessity to keep up with technological development.
The government further argues that Chinese companies are the only ones that can introduce cutting-edge EV technology to secure the survival of the Hungarian automotive sector. The government also claims that the presence of Chinese investors will decrease Hungary's dependence on the West, therefore, potentially mitigating the impact of another European economic crisis on Hungary. Furthermore, such investments will lead to technology transfers, the creation of jobs, and the inflow of capital.
However, it is hard to see how Hungarian dependencies on the West could decrease, since German automakers, and the European market overall, will primarily be supplied by Chinese companies. It is also questionable whether it is wise to maintain or even increase the country's dependence on the automotive sector rather than diversify away from it. Furthermore, technology transfer requires competitive domestic companies and experts, while Hungary mostly lacks all of these given the level of crony capitalism and the low quality of education thanks to systemic underfinancing of public services and institutions.
The promise of new jobs is also misleading. For many years, one of the major concerns of companies in the country has been the lack of an available labour force. Unemployment levels are at a record low, as hundreds of thousands of young Hungarians have left for Western Europe over the past decades in the hope of better living standards. To compensate for this, the government has started to promote the import of guest workers from abroad, mostly from Asia. However, given that the very same government has been employing hatemongering tactics against migrants and other minority groups for the last decade, the increased inflow of foreign workers has led to local tensions in the countryside where factories are located and where most of Orbán’s voters live.
Still, as long as the EU does not find a way to defuse Hungary's veto power in the EU, Orbán can continue playing his balancing game. Ironically, the fall of the 16+1 cooperation and the fact that most EU member states have started to distance themselves from Beijing has left him even more important to China. The worse that relations may get between the West and China, the more political potential Orbán will see in his role as a middleman.
DISCLAIMER: All views expressed are those of the writer and do not necessarily represent that of the 9DASHLINE.com platform.
Author biography
Dr Tamás Matura is the founder of the Central and Eastern European Center for Asian Studies, the Hungarian member of the European Think Tank Network on China, a non-resident fellow of CEPA Washington, and serves as an Associate Professor of Corvinus University of Budapest. Image credit: Flickr/European People's Party.