HUANG Mengmeng: Point of reference


Hungary's pragmatic and balanced economic foreign policy boosts Sino-Hungarian cooperation 

The geopolitical competition among great powers has become increasingly intense since the outbreak of the Ukraine crisis. The economic and foreign policies of the European Union present a trend of "pan-securitization", in which trade and investment have become part of the security issues. Discussion about reducing economic dependence on China, critical infrastructure protection and controls on dual-use technology exports is endless. Due to the rising competitiveness of Chinese enterprises in the fields of new energy, electric vehicles and digitization, many European politicians assume that the nature of EU-China trade relations has changed from "complementary" to "competition". In light of this, the EU has launched a foreign investment screening mechanism, a supply chain act, and the European Economic Security Strategy, as well as an anti-subsidy investigation into China's EVs, all of which are trade protection measures. 

However, while the EU links trade to geopolitical and security issues, Hungary has taken a different approach to dealing with international geopolitical risks, maintaining economic resilience through a pragmatic "Opening to the East" policy, which is an effective alternative to the "de-risking" approach. Hungarian Foreign Minister Peter Szijjardo has warned that any move to decouple, or de-risk, from China would be an act of "suicide" for Europe, and he has appealed for a realistic approach, saying that closer economic cooperation between the East and the West is needed more than ever before. In this sense, Hungary is seeking to strengthen the country's connectivity and fight against the rise of political and economic blocs. Thus, in recent years, Hungary has become a popular investment destination for China's EV manufacturers based on its pragmatic and balanced foreign and economic policies and industrial strategy. 

The idea of Hungary's economic and foreign policies is to shape balanced trade and investment relations between the East and the West, strengthening the resilience of its economy. The liberal policies in the post-Cold War period did not improve Hungary's economic position in Europe. Thus, in 2011 the Hungarian government launched the "Opening to the East" policy with the aim of developing diversified trade relations and achieving a balance of East-West direct investment in Hungary, to extend the country's economic growth space. Over the past decade, Germany's share of foreign direct investment in Hungary has fallen from 26 percent to 17 percent, the United States' share from 19 percent to 7 percent, and the share of Asian countries has increased from 18.8 percent to 34 percent. But Hungary's goal is not to replace its dependence on the West with dependence on the East, but rather to become a meeting point between the East and the West and to access more economic and technological resources. In particular, Hungary is welcoming investments from China and the Republic of Korea in the EV and related industries while maintaining and retaining supply chains in EU countries. Against the volatile geopolitical backdrop, Hungary's effort to keep an East-West trade balance is conducive to its economic recovery and job preservation. In 2023 China was the top foreign investor in Hungary, with 380 Chinese companies operating in Hungary, employing more than 16, 000 local people. 

Hungary's "Opening to the East "policy and China's Belt and Road Initiative are synergistic in promoting pragmatic economic cooperation with global partners, which is conducive to achieving a win-win situation. The common goal of both initiatives is to build a diversified and open global trade network, promote connectivity and economic prosperity, and oppose the forming of "trade camps". Thus, China and Hungary share similar views on the promotion of globalization, opposing confrontational policies such as "decoupling "and the forming of "small yards with high fences". 

Chinese automaker BYD's investment in the southern Hungarian city of Szeged is seen as a high-tech investment that will create thousands of local jobs. According to polling data from 21 Kutatóközpont, a Budapest-based think tank, in January, 85 percent of local interviewees supported this investment. Hungary's industrial strategy is in line with China's overseas investment goals. As 20 percent of Hungary's GDP depends on the automotive industry, and global automotive manufacturing is currently undergoing a major technological transformation, Hungary needs to seize the diversified investment opportunity to promote the transformation of its automobile supply chains to gain a competitive advantage. It is expected that EV and batteries will become Hungary's most important export commodities in the next few years. 

However, it is worth noting that even though China and Hungary share similar ideas in their foreign economic policies, Chinese investment in Hungary is not without obstacles. The EU sees the trade and investment issues as security-related and suggests member states to set up a stricter foreign direct investment screening framework at the national level, which is not conducive to the restoration of the EU's economy in the crisis era. Hungary, as an EU member state, needs to follow the EU's directives. Under such circumstances, Chinese companies urgently need to gain more political and social trust in Hungary. They also need to create value-added products while following the EU standards. For this reason, in a complex geopolitical environment, Chinese companies going abroad need to not only familiarize themselves with EU regulations and standards, but also actively communicate with local communities to maintain the sustainability of their investments. 

In addition, the key to competition in the EV industry lies in battery technology, user demand and the price advantage of Chinese EVs. The EU's anti-subsidy investigation is also based on the fact that the EU automotive industry is currently struggling to gain the same competitive advantage as the Chinese industry in a short time, which is why the EU has taken trade protection measures. 

Chinese companies investing in Hungary are not unilaterally benefiting from the development of the country's supply chain to enter the EU market, but will create more industrial added value, leading to transfer of technology, management skills and know-how, to maintain the sustainability of the investment to achieve a win-win situation. 

Huang mengmengassistant research fellow at Institute of European Studies of the Chinese Academy of Social Sciences.    

The article was originally published in China Daily Global on May 13, 2024. The article has been authorized.