Budapest, Hungary — Chinese leader Xi Jinping will spend most of his five-day tour of Europe this week in two small countries on the eastern half of the continent, a region that Beijing has used as a base for its growing economic ambitions in Europe.
After a stop in Paris on Monday to kick off his first European trip in five years, Xi will next travel to Hungary and Serbia, two countries with autocratic leaders seen as China-friendly and close to Russian President Vladimir Putin.
While mainstream European leaders have pursued more protectionist policies to limit Beijing and Moscow's influence on the continent, the governments of nationalist conservative leaders Viktor Orbán of Hungary and Aleksandar Vučić of Serbia have vigorously pursued economic ties with China, major investments in infrastructure, production, energy and technology.
As the first European Union country to join Xi's signature Belt and Road Initiative, Hungary finds itself in a middle ground between its membership of the EU and NATO, and an unusual openness to diplomatic and trade ties with eastern autocracies.
Tamás Matura, a China expert and associate professor at Corvinus University in Budapest, said Hungary's hosting of major Chinese investments and manufacturing sites – and its agnosticism towards doing business with countries with poor track records democracy and human rights – has opened a crucial door to China. within the EU trading bloc.
“The Hungarian government is China's last true friend in the entire EU,” Matura said. “It is now very important for the Chinese to settle in a country that is within the borders of the EU … and is friendly to the Chinese political system.”
One of the main benefits for China of establishing bases within the EU: avoiding expensive tariffs. The European Commission, the bloc's executive arm, is considering raising tariffs on imports of Chinese electric vehicles (EVs) from the current 10% to protect the European car manufacturing market – a mainstay for Germany, the EU's largest economy with 27 Member States.
Yet in December, Hungary announced that one of the world's largest EV manufacturers, China's BYD, will open its first European EV production plant in the south of the country – an entry into the EU that will boost the competitiveness of the car industry. the continent could improve.
That shift is already visible in Budapest, where a car dealer has started reducing its range of European vehicles and is instead introducing BYD-produced models.
Márk Schiller, the strategy and marketing director of the family-owned Schiller Auto Group, said he believes European carmakers are “already behind” China in the transition to electric car production. His company recently stopped selling cars from German carmaker Opel and switched to BYD.
“This was a huge shift,” Schiller said.
Unconfirmed reports suggest that he and Orbán will announce a new investment in electric car production involving China's Great Wall Motor during Xi's visit to Hungary from Wednesday to Friday. Orbán's office did not respond to multiple requests for information about the visit's schedule.
In Serbia, southern Hungary, China operates mines and factories across the Balkan country, while billions in infrastructure loans have financed roads, bridges and new facilities.
Hungary and Serbia have an agreement with Beijing to modernize the railway between the capitals of Budapest and Belgrade, part of a Belt and Road plan to connect to the Chinese-controlled port of Piraeus in Greece as an access point for Chinese goods to Central Asia. and Eastern Europe.
The bulk of the project, which is expected to be completed in 2026 after numerous delays, is being financed with loans from Chinese banks – the kind of capital that Hungary and Serbia were keen to use.
According to William's AidData research lab & Mary, a public university in Virginia, Chinese lenders provided loans worth more than $22 billion to nine countries in Central and Eastern Europe between 2000 and 2021.
Of that amount, $9.4 billion went to Hungary and $5.7 billion to Serbia, dwarfing the totals of other regional countries.
Vučić has said he is “honored” that Xi – whom he often describes as a “friend” – is visiting on Tuesday. He said before the visit that Serbia would seek further Chinese investment, especially when it comes to advanced technologies.
But economic analyst Mijat Lakićević said he did not expect any major new investment deals because “everything Serbia does with China has already been agreed.”
Hungary has also created a favorable investment environment for China, offering generous tax breaks, subsidies and infrastructure support to Chinese companies, and helping them navigate the Hungarian bureaucracy.
“They roll out the red carpet and get everything tailor-made by the government. And that is a huge advantage,” says Matura, the Chinese analyst.
Near Debrecen, Hungary's second-largest city, construction is underway on a nearly 222-hectare EV battery factory worth 7.3 billion euros, Hungary's largest ever foreign direct investment.
Orbán's government hopes the factory, run by Chinese battery giant CATL, will turn the country into a global hub for lithium-ion battery production in an era when governments are increasingly trying to curb greenhouse gas emissions by switching to electric cars.
Such investments come at a time when Hungary's sluggish economy is further hampered by record inflation and the freeze of billions in EU funding withheld because of Orbán's record on democracy standards and the rule of law.
With EU money at a standstill, Matura says, China is willing to fill the gaps in Hungary's budget.
“EU funds have almost completely stopped flowing into the Hungarian economy, so now there is a desperate need in Hungary to turn to other alternatives, other sources of financial capital,” he said.
Orbán has been open about why he has prioritized Chinese investment: his belief that Western economies are in decline and that China is on the rise.
During a recent speech at the conservative CPAC Hungary conference, Orbán outlined a vision of a “world economy that will be organized according to the principle of mutual benefit, free from ideology.”
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Jovana Gec reported from Belgrade, Serbia.
