Podstawą węgierskiej retoryki dotyczącej zagranicznej polityki gospodarczej stała się w ostatnich latach teza, że dla utrzymania rozwoju węgierskiej gospodarki należy pozostać poza dyktowanymi przez interesy geopolityczne podziałami światowej gospodarki na bloki oraz że aby uniknąć wciągnięcia Węgier w spowolnienie europejskiego wzrostu, należy pogłębiać relacje ze Wschodem, głównie z Chinami.
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Balázs Orbán, the prime minister's political director, has called this the politics of connectivity, meaning that Hungary can succeed if it becomes a meeting place for companies and technologies from the East and West. And Viktor Orbán has recently described his concept as "economic neutrality," according to which Hungary is to stay away from dividing the global economy into blocs and will remain open to "all directions."
The first part of the strategy, building relations with the East, appears to be succeeding.
While the European Commission opposes to reduce economic risks from China, and the Baltic states and some countries in the region, from Romania to the Czech Republic, in line with Western interests increasingly avoid close relations with China, the Hungarian government is significantly supporting financially and welcoming Chinese investment. Orbán is also making spectacular foreign policy gestures, such as opposing to Beijing's hostile statements and actions by the EU, Hungary's support - as the only Western country - of China's "peace plan" in Ukraine, or engaging in the Belt and Road program.
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Using these tactics, Hungary today has indeed become a European beachhead for Chinese companies. According to According to a joint assessment by the specialized market analysis center Rhodium China and the Financial Times, in the face of geopolitical tensions and applied protectionism, China is increasingly seeking to maintain and increase its presence in the Western market through politically friendlier third countries instead of direct investment. Since 2022, Hungary has become one of the most important foreign distribution countries for Chinese companies, so that last year, of all Chinese investments made in the EU, almost half were in Hungary, and in the electric car industry, Hungary's share was more than 60 percent.
At the same time, China's investment fever has so far failed to boost growth in the Hungarian economy, and many economists doubt it will ever happen.
Chinese expansion through Mexico, Ireland, Serbia
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Between 2010 and 2019, Chinese companies spent hundreds of billions of dollars annually to buy out Western ones. In recent years, however, partly because of China's stricter capital export controls and partly as a result of the West's protectionist measures, Chinese investment in large and developed countries has been declining.
National security prosecutions against Chinese investment and acquisitions have increased in the United States, and more recently in European Union member states, while tariff hikes and protections for strategic sectors like the automotive industry are designed to counter the expansion into Western markets of emerging Chinese companies. Increasingly, therefore, Chinese companies are reorganizing their production chains toward the border regions of large Western markets.
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Taking advantage of the US-Mexico free trade agreement and relatively low wages, the Chinese are moving final assembly to Mexico and Vietnam instead of investing in the US. Singapore plays an important role in this strategy. Many Chinese companies, through a financial center in Southeast Asia, are attempting to free themselves from the odium of their origins and secure access to Western markets and the Indian market, which is even more hostile to Chinese expansion. Perhaps the most famous example is online clothing retailer Shein, which officially operates today as a Singapore company and is seeking to go public, with some disapproval from Beijing authorities.
China's bridgeheads in Europe have become Ireland and Hungary. Ireland was already a popular European beachhead for the global tech world because of its lax tax laws, and in recent years Chinese technology and service companies have sprung up here alongside American ones, from ByteDance, the company behind TikTok, to Huawei, to biotech and financial services firms.
By comparison, Hungary - as indicated by planned investments - has become the most important market for China's electric car industry. According to Rhodium data, in 2023, of all European investments by China's electric car industry, as much as 62 percent were directed to Hungary, far outstripping investments in Germany, France or Spain. After the value of buyouts of Western companies fell to a minimum, and the majority of total Chinese working capital investment was in the auto industry, Hungary, with 44 percent of European investment, became the EU's top Chinese destination last year.
It's important to note that the numbers reported by Rhodium are not based on investments already made, but on dividing the official amount of announced investment by its planned implementation periods. For this reason, the Hungarian figures, for example, already include CATL's battery factory in Debrecen and BYD's planned car assembly plant in Szeged, although the latter project is still in its early stages and construction of the former has only just begun. Judging by the current situation in the European automotive industry, there is no certainty that these two investments will be completed as originally planned.
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Serbia is struggling for a similar position. Significant Chinese investments in the country include the metal and steel industries, are spreading into the mining and automotive industries, and are increasing their share in infrastructure construction and real estate.
Will it pay off?
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According to an April IMF report, the aforementioned countries are playing an increasingly important role in the global trading system as bridges between blocs and helping to strengthen trade and investment relations. Trade flowing through these countries is growing, which in the short term also implies an increase in production.
At the same time, the IMF report indicates that while the use of connectors serves to create direct relationships, it contributes neither to diversification nor to strengthening supply chains, nor to the decline in strategic dependencies between Western economies and China. In the context of Hungary, this means that the role of a linkage between the Chinese and European markets from both economic and political perspectives carries risks.
The first is indicated by the already poor performance of the manufacturing industry today: with the assumption of the role of intermediary, dependence on Western demand and on the Eastern supply chain is increasing, which in times of cyclical weakness in the external economic situation results in a deceleration of growth.
The second economic problem is that the intermediary role generates turnover in one direction. Although Viktor Orbán claims that by being economically neutral Hungary can decouple from Europe's poor performance, the reality is that there has been almost no growth in Chinese exports in recent years, and the intermediary role has not been enough for Hungary to plug into a Chinese economy showing slightly higher growth - although currently struggling, like Europe, with sluggish trade -.
The third problem stems from the fact that the intermediary role in practice usually means setting up low-value-added assembly plants, and the government's hopes of accessing Chinese technology are proving to be flimsy. In Vietnam or Mexico, this may be enough for development, but for us to climb to the average level of development in the EU - no.
In addition, the strategy is also likely to be worrying from a political point of view. Mexico already feels that the role of intermediary is not easy at all: the US government has announced that it will no longer tolerate attempts by Chinese companies to circumvent US tariffs by investing in Mexico. And the opportunities afforded by the role of intermediary in the auto industry are severely limited by the fact that in September the Ministry of Commerce, citing data protection and national security considerations, made a request for a total ban on the import of cars with software and electronic components of Chinese origin.
In Europe, the chances of such a step are much less likely, but what is happening in America shows that javelining between the geopolitical interests of the big players by countries with intermediary roles will only be possible in the short run.
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Mészáros R. Tamás - Hungarian researcher and journalist specializing in international politics and economics. His main area of interest is East Asia.
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Translation: Anna Boros | Voxeurop
