Hungary China’s new friend in the EU – CET analysis

Chinese President Xi Jinping’s recent visit to Hungary underscores the geopolitical importance of the growing bilateral friendship. China’s new investments in Hungary total EUR 16bn and are expected to reach EUR 30bn by the end of the year.

On his first visit to Europe since the pandemic, Chinese President Xi Jinping first visited France for several complex and delicate negotiations. French President Emmanuel Macron’s drive for a more independent EU presents China with an opportunity to counterbalance US influence. However, France remains a formidable opponent in a number of key economic areas. 

A major point of contention is the EU’s plan, led by France, to impose higher tariffs on Chinese carmakers to protect the EU car market from cheaper imports. German manufacturers, who benefit significantly from the Chinese market, oppose these tariffs, while French carmakers, with minimal presence in China and more susceptible to competitive pricing, are the main supporters. The opposing views on Russia are also an important factor that complicated Xi’s negotiations in Paris.

Faced with these challenges in Western Europe, Xi’s visit underscored Hungary’s role as China’s sole close ally in the EU. Before Hungary, Xi visited Serbia, another ally in Europe, which has seen numerous Chinese-funded infrastructure projects and where China accounts for about 9% of Serbia’s national debt. 

While Serbia’s friendship is important, Hungary’s position as an EU member state offers greater strategic value by providing access to the broader EU market.

During his visit, Xi and a delegation of around 400 officials signed 18 new agreements with Hungary. These include infrastructure projects including a freight railway line around Budapest, a high-speed rail link to Budapest Airport, and the expansion of electric vehicle charging stations across Hungary. The deals also covered nuclear cooperation and the construction of a new high-capacity border crossing between Serbia and Hungary, both pivotal for China’s expansion strategy in Europe.

These new investments, totalling EUR 16bn, add to significant Chinese investments in Hungary over the past three years, expected to reach EUR 30bn by year-end. In 2023, foreign direct investment in Hungary already reached a record high of over EUR 13bn, as the country became the 4th largest recipient of Chinese investment in Europe, after the UK, Germany, and France. 

Hungary’s strategic position as a logistics hub is emphasised by developments including the Budapest-Belgrade railway and the transhipment terminal in Zahony, east Hungary. Meanwhile Chinese tech giant Huawei has established its largest base outside China in Hungary, and major Chinese automotive investments are set to integrate further into the European market. Budapest Airport has become a leading hub for Chinese airlines, with regular flights from seven Chinese cities.

The cooperation between the two countries began to improve in 2010 when returning Hungarian Prime Minister Viktor Orban launched an “Eastern Opening” strategy. Hungary continues to be actively involved in China’s Belt and Road Initiative and the Central European ’14+1′ drive, even as other countries reduce their participation. Orban was the only EU leader to attend the 2023 Belt & Road Forum in Beijing.

Orban’s proactive engagement with China, especially in light of Hungary’s economic difficulties not only boosts Hungary’s economy but also helps maintain vital economic ties with Germany.  The Chinese market and cooperation with Chinese companies are essential for the German industry, though German politicians prefer a more discreet relationship with China, as overtly close ties might not sit well with their voters or Western allies.