Hungary held a parliamentary election in April this year. The pro-EU opposition party "Respect and Freedom Party" (Tisza) won an overwhelming victory, and Magya (pictured) became the new Hungarian Prime Minister (Reuters)
Hungary is the first European country to sign a Belt and Road Initiative with China
[Financial Channel/Comprehensive Report] Hungary held a parliamentary election in April this year. The pro-EU opposition party "Respect and Freedom Party" (Tisza) won an overwhelming victory, capturing more than two-thirds of the seats with 141 seats. The ruling party "Young Democrats" (Fidesz) only won 52 seats, which meant that Viktor Orban, who had been in power for 16 consecutive years, resigned and Peter Magyar became the new Hungarian prime minister.
As Orban has gradually become closer to China since taking power in 2010, Hungary became the first European country to sign a memorandum of understanding on "Belt and Road" cooperation with China in 2015. Now that the new Hungarian government has come to power, it has announced a stricter attitude towards foreign investment. It has begun to strengthen supervision of Chinese companies and re-examine the investment cases of the previous government. Electric vehicle manufacturer BYD and battery manufacturer CATL have become targets of the new government's investigation.
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Hungary's turn to China has multiple backgrounds. The Diplomat reported and analyzed that the 2008 global financial tsunami made Central and Eastern European countries, including Hungary, hope that China could help them reduce their dependence on Western Europe. By the early 2010s, the "16+1" cooperation mechanism (16 Central and Eastern European countries plus China) and the "Belt and Road" initiative gave China the opportunity to enter the EU market, undertake infrastructure projects, and expand political influence.
When Orban returned to power in 2010, Hungary was faced with high debt, with public debt accounting for more than 80% of GDP, and a highly fragile economy. Orban promoted the "Eastern Opening" policy. Hungary positioned itself as China's core stronghold in Central Europe and was highly dependent on various Chinese goods. Although this made Hungary one of the fastest-recovering countries in the region. But it has also increased Hungary’s dependence on Chinese and Russian funds.
The Budapest–Belgrade railway (also known as the Hungary-Serbia railway) is a representative case. The project cost more than 2 billion euros, and most of the funds came from Chinese loans. The outside world has many questions about its corruption and transparency.
Hungary became the first European country to sign a "Belt and Road" cooperation memorandum of understanding with China in 2015. China later upgraded Hungary to an "all-weather comprehensive strategic partnership," which is the highest-level partnership China has established with other countries. It is not only symbolic but also substantive. Hungary will account for 44% of China's direct investment (FDI) in Europe in 2023, which is more than the combined 35% of China's traditional investment countries Germany, France and the United Kingdom.
Orban has repeatedly had frictions with the EU over rule of law and human rights issues in recent years. When Orban ushered in his fifth term as prime minister in 2022, the European Parliament approved a resolution stating that Hungary had become a "hybrid regime of electoral autocracy" and was not a fully democratic country, seriously violating EU democratic norms. After the Russo-Ukrainian War, Orban was also the only leader to maintain relations with Moscow after Russia invaded Ukraine, refused military aid to Kiev, and constantly criticized sanctions against Russia.
Former Hungarian Prime Minister Orban has repeatedly had frictions with the EU over rule of law and human rights issues in recent years. (AP)
Hungary’s new government re-investigates BYD, CATL
However, Hungary has faced economic stagnation in the past three years, soaring living costs, and the surge in the wealth of oligarchs close to the Orban government, which has caused dissatisfaction among voters. At the same time, the Orbán government is suspected of colluding with Moscow, making the election even worse. This allowed Magya, a rising political star, to successfully capture public dissatisfaction. He promised to crack down on corruption, unfreeze billions of euros of EU funds, tax the richest people, and reform Hungary's crumbling health care system. In a completely different direction from Orban, he succeeded in becoming Hungary's prime minister.
Magya has pledged to take a tougher approach to foreign investment than the Orban government, which was widely seen as having fewer restrictions on foreign companies. Magya also called on Chinese companies, including BYD and CATL, to comply with Hungarian environmental and labor regulations.
Since taking power in May, Magya's government has sought to tighten environmental and labor standards while making government funding agreements more transparent. Individual investment projects reached during the Orban government will now be re-examined.
The Magya government announced in July that it would investigate a large-scale investment by BYD. The investment was negotiated by former Hungarian Foreign Minister Péter Szijjártó, who resigned as a member of parliament in July to become a senior executive at BYD. Magya said: "We will review all decisions, negotiations and state commitments made by Szijjarto, and as long as these matters are related to BYD's investment in Hungary, they will be included in the investigation."
Foreign media also exposed the details of the agreement reached between the Orban government and BYD, including the promised government support and the possible employment of about 10,000 Chinese workers. In addition, working conditions at BYD's new factory site have also been criticized. Citing interviews with Chinese workers, China Labor Watch pointed out that working hours can last up to 14 hours a day, seven days a week.
BYD's factory in the southern Hungarian city of Szeged is under construction. (Bloomberg)
Chinese companies are required to strictly abide by environmental and labor laws
The South China Morning Post pointed out that BYD has required the contractors responsible for building its Hungarian factory to sign a letter of commitment to abide by Hungarian labor regulations, and has also begun to increase prior review of business visa personnel on the construction site. In addition, two senior executives of Chinese companies in Hungary said that many Chinese companies have recently been working hard to ensure compliance with relevant regulations, but some companies are still waiting to see whether the informal practices during the Orban government can still be applied.
Another object that has attracted attention is CATL's new battery factory in Debrecen. The factory has begun battery module production, but the start-up time of actual battery cell production has been delayed.
As early as the end of August, the Hungarian occupational safety authority temporarily suspended operations in three areas of CATL’s battery cell production plant. Previously, nine employees had been found to have high levels of nickel exposure; during follow-up inspections, the competent authorities also criticized the protective equipment. Full licensing for battery cell production has also been delayed. The first phase of the expansion was approved at the end of August, but the application for the second phase was initially rejected due to formalities.
CATL also had environmental violations and was fined in August, including a lack of labeling and storage of hazardous waste. On the other hand, as early as June, the competent authorities revoked the business license of the Debrecen factory of Semcorp, a subsidiary of Chinese battery separator manufacturer Enjie Co., Ltd. because the groundwater of the factory was detected to have high metal concentrations.
Although the Magyar government places greater emphasis on compliance with environmental, labor and transparency standards. However, so far, the Magya government has not announced a fundamental withdrawal from economic cooperation with China.
The picture shows CATL's new battery factory in Debrecen, Hungary. The factory has already started producing battery modules and will become CATL's largest production base outside China when completed. (Bloomberg)
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