Opinion | Xis European tour: why Hungary and Serbia are the important stops

March 12, 2024

In a move seen as a counterbalance to the inevitable political pressure from Paris and amid the economic threats from Brussels, Xi reportedly plans to also visit Hungary and Serbia during his European tour.The leaders of both countries are among the most ardent European advocates of China’s Belt and Road Initiative. Hungary’s Prime Minister Viktor Orban and Serbian President Aleksandar Vucic were the only two European heads of state at China’s third Belt and Road summit last year, which was also attended by Russian President Vladimir Putin.Back in 2012, Hungarian capital Budapest hosted the founding of the China-CEEC cooperation mechanism to promote the Belt and Road Initiative and cooperation with 16 Central and Eastern European countries. Greece’s membership in 2019 made it “17+1”. Collaboration foundered during the pandemic and after the Ukraine crisis broke out, Estonia and Latvia left the group, a year after Lithuania did the same.

But Hungary and Serbia have persisted in building relations with China. One of the most high-profile projects to emerge from the China-CEEC cooperation mechanism is a high-speed railway to connect Serbia’s capital Belgrade with Budapest. The project has, however, been held up by EU regulations and faces delays and risks of escalating costs.

This did not deter Orban from attending China’s Belt and Road summit last October in Beijing, where the Hungarian leader signed several economic agreements.

Indeed, two months after the summit, BYD, China’s largest EV manufacturer, announced plans to establish a plant in southern Hungary. This is to be BYD’s first passenger car facility in Europe and the centre of its European production operations. BYD also has a plant in the north of the country where it assembles electric trucks and buses.As Hungary is part of the EU, China EV makers operating within the country can sell directly from within the European single market. This would avoid any potential tariffs that could emerge out of the EU’s anti-subsidy investigations into imports of Chinese EVs.

03:15

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Hungary is also the main European destination for Chinese investment in EV batteries. Several Chinese-owned battery makers are setting up operations there, including Contemporary Amperex Technology (CATL), whose €7.3 billion (US$7.8 billion) gigafactory is poised to be the biggest in Europe, and smaller operations by Eve Energy and Huayou Cobalt.There is a risk that the growing concentration of Chinese battery makers in Hungary could prompt struggling European competitors elsewhere to request that the EU invoke its new foreign subsidies regulation (FSR). This applies to subsidies given to foreign investors establishing operations in the EU, rather than on imports.

To be sure, the prospect of an FSR investigation into Chinese producers in Hungary is still considered a remote prospect, at least for now. Chinese investment in Hungary still involves the European onshoring of battery capacity rather than dependence on imports, and alternative sources of EV battery production in the EU remain limited and more costly.

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Meanwhile, in Serbia, China’s investment flows in recent years have edged ahead of big European players such as Germany and France – China has risen to become the Balkan state’s largest and principal investor.

Early this year, China’s Shanghai Fengling Renewables and Zijin Mining announced a €2 billion wind and solar power project in what is being described as Serbia’s largest renewable power investment.

Although Serbia is an EU candidate state, rather than a member, it has been granted tariff-free access to the European single market for almost all of its products as it works towards a full accession. As a result, Serbia’s forays into attracting Chinese automotive investment have been met with growing interest.

02:21

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China’s Minth Automotive, which has an aluminium car parts plant in Serbia, has plans to build a new production centre to make battery housing parts for EVs. Other Chinese automotive companies established in the country include Linglong Tyre, Mei Ta, Xingyu Automotive Lighting Systems and Yanfeng Automotive Interiors, which together supply both the EV and traditional car markets of Europe.

Guided by China’s free trade agreement with Serbia and China’s commerce ministry, Chinese companies have mainly invested in Serbia’s automotive, mining and metals manufacturing sectors – and Xi has described this relationship as “ironclad”. Hungary’s Orban has also spoken warmly of bilateral relations with China as reaching “unprecedented heights”.

All of which is in stark contrast to the EU’s message of “de-risking” from China.

Bob Savic is a senior research fellow at the Global Policy Institute in London, UK, and a visiting professor with the University of Nottingham’s Faculty of International Relations

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