In the battle for the transformation of the European automotive market, Hungary has not only taken the lead, but also stood out from European countries by relying on the policy of opening up to the east, and at the same time it has become an ideal entry point for Chinese companies to explore the European market.
On December 22, 2023, Chinese auto giant BYD announced that it will build a world-leading new energy vehicle manufacturing base in Hungary, which attracted domestic and foreign media attention as soon as it was released. Europe, as the home base of the global automotive industry, is increasingly feeling the competitive pressure from China, and at the same time, China's new energy vehicle industry going overseas has become a hot topic in 2024.
Why did BYD's globalization settle in Hungary? This is a question asked by many people, after all, Hungary is a name that sounds familiar and unfamiliar to Chinese people. From the perspective of the Chinese, this is a veritable "small landlocked country": 9.7 million people, roughly the size of Jinan; 93,000 square kilometers, slightly smaller than Zhejiang Province, has no access to the sea and is tightly surrounded by six countries, similar to the situation in Shanxi Province. It should be said that in terms of congenital conditions, Hungary is not superior. However, in recent years, the success of the Orban government's national strategy has not only made this humble "small country" show an unprecedented "big picture", but also become the global fulcrum and manufacturing center of many multinational enterprises
(Figure 1: View of Budapest.) Source: Internet)
Foreign direct investment (FDI) in Hungary reached an all-time high in 2022: in 2022, Hungary completed 92 large FDI transactions totalling €6.5 billion in just one year, according to official figures. In the same year, the "Global FDI Report" released by the World Organization for Economic Co-operation and Development showed that in the 10 years from 2013 to 2022, Hungary ranked among the top in the world with an average growth rate of 7.96%.
2022 is a "big year" for Chinese enterprises to invest in Hungary: BYD, CATL, EVE, Sunwoda, Enjie, Huayou Cobalt, Hangke Technology, etc. have successively announced investment and construction of factories in Hungary. Some people joke that Chinese electric vehicle companies "have either built factories in Hungary or are on their way to Hungary". What needs to be affirmed is that the friendly and cooperative relations between China and Hungary have made great progress and sublimation since the Orban government came to power.
Why has Hungary been able to attract large investments from Chinese tech giants such as BYD at a time when the global economy is bleak? What is the fundamental reason behind this? In this article, we will start with the actual achievements and explore the deep-seated reasons for Hungary's rise against the trend with many questions. Based on the in-depth interview with the head of the Hungarian Government Office, and based on the long-term research and consulting experience of corporate globalization, Xinfu Think Tank has made an in-depth analysis of Hungary's development history, political system, national strategy and industrial environment, and will show readers the underlying logic of Hungary's rise and the historic opportunity for Chinese enterprises to go overseas to Hungary from the following three dimensions: 1. The Magyar nation awakened in the throes, 2. The outstanding leadership behind Hungary's successful transformation, 3. The global vision of Hungary's battery industry policy strives to provide strong support for Chinese enterprise decision-makers through in-depth analysis.
The Magyar nation awakened in the throes of labor
To understand Hungary, one must first read history. Located in the interior of central Europe, at the junction of different Eurasian nation-states, this country is destined to be extraordinary, and its history is destined to be full of ups and downs.
Throughout its long history, it is not difficult to find that Hungary's development has always been influenced by both Eastern and Western cultures, and here we might as well make a brief combing. In the 5th century, Attila, the "Huns" of the East, migrated here and established a powerful Hun Empire, and in the 9th century, the Magyarok, a nomadic tribe, migrated here and became the dominant ethnic group in Hungary today. In the millennium that followed, the Germanic peoples of the West, the Slavs of the North, the Mongols and the Turks of the East all set foot in the land several times.
（图2：19世纪绘制阿提拉画像。 来源：Hungarian Conservative）
Hungary first stepped into the ranks of Western powers in the 19th century. At that time, the Hungarian aristocracy was dissatisfied with the rule of the Austrian Habsburgs. The Hungarian Revolution broke out in 1848 when the revolutionary poet Pedolfi shouted, "Life is precious, love is more valuable, and if it is for freedom, both can be thrown away!". Faced with a fierce Hungarian general, the Austrian emperor finally chose to compromise. With the formal establishment of the Austro-Hungarian Empire in 1867, Hungary was transformed from a vassal state into a sovereign state on an equal footing with Austria, enjoying almost independent autonomy in the fields of legislation, justice, administration, customs, coinage, etc.
Austria-Hungary was once a great power: it was the second largest country in Europe in terms of land area, third largest in terms of population, and third largest in the world in terms of industry. However, the good times were short-lived, and the empire suffered a crushing defeat in World War I, with Hungary losing 74% of its territory and 62% of its population. In World War II, the country once again plunged into the abyss of war, once again losing nearly 2 million people and losing 1/3 of its territory. In 1945, the Soviet Union repelled the Nazis, and Hungary became a satellite state of the Soviet Union.
But the Magyars are stubborn by nature, and the Iron Curtain cannot bind them after all. In October 1956, Khrushchev was shocked when the Hungarian revolution broke out again, and hundreds of thousands of people poured into the streets. Although it ended in the strong intervention of the Soviet Union, the determination of the Hungarians to be unwilling to be held hostage is evident. After the end of the Cold War, Hungary heeded the call of the people and chose to move towards the "end of history" - a return to the West.
(Figure 3: Map of Europe in which Hungary is located.) Source: Internet)
But the return to the West did not solve all the problems of Hungary, because while leaving the Soviet Union, Hungary also experienced a severe economic pain. In 1989, with the collapse of the Soviet Union, Hungarian goods, which had enjoyed Soviet subsidies and a large internal market, lost their competitive advantage in an instant, losing more than 70% of the external market. According to statistics, between 1990 and 1993, GDP fell by 18%, a large number of factories closed, 800,000 people lost their jobs, and the unemployment rate soared from 1.7% to 12%. In response to the economic crisis, the country had to slash public spending, social welfare was lost, and the people complained.
(Photo 4: Hungarian youth take to the streets cheering after the collapse of the Soviet Union.) Source: API)
Over the next decade, thanks to the efforts of the governments of Antall József, Péter Boross, and Gyula Horn, Hungary undertook profound market reforms in the economy, including trade embargoes, tax reforms, the establishment of market-oriented banks, the acceleration of the privatization of state-owned enterprises, and the establishment of an export-friendly exchange rate regime. With the implementation of these initiatives, the Hungarian economy gradually got back on track in the late 90s. With cheap labor, tax incentives and good infrastructure, Hungary has successfully attracted foreign investment from Germany and the United States, accounting for more than one-third of direct investment in Central and Eastern Europe. This momentum was maintained until 2007, during which time FDI reached 51.8 per cent of GDP and Hungary developed from a lower-middle-income country to an upper-middle-income country.
If you want to truly become a Western country, you need not only to be economically in line with the West, but also to be recognized by Western powers. For Hungary, nothing is more convincing than joining the European Union. In 1994, Hungary submitted its application for accession, and in 1998, Hungary and Brussels began accession negotiations.
(Figure 5: Hungarian government debt from 1995 to 2021, with the green line representing the debt-to-GDP ratio and the red line representing total debt.) Source: Wikimedia)
At that time, Hungary could not have imagined that joining the European Union would be the beginning of its second economic pain. As Hungary is in a period of transition, it needs to carry out deep reforms in more than thirty different areas in order to meet EU requirements. However, the biggest blow to the Hungarian economy, which is on the uphill slope, is the EU's "Maastricht criteria": government debt must not exceed 60% of GDP and government fiscal deficits must not exceed 3% of GDP. You must know that for the Hungarian economy, which is still in need of macroeconomic control support, the implementation of such a strict fiscal reduction policy is undoubtedly a basin of ice water on the economy that is just about to take off!
There is often a double-edged sword in the fate of a country, which can be said: success is also the West, and decline is also the West. As the government began to implement austerity policies and accelerated privatization, Hungary's industrial transformation was slow, but it became a depression for international capital investment. Speculative capital from all walks of life has increased its financial investment in Hungary and has even controlled more than 90% of the banks. Hungary has become the most "gold-absorbing" country in Central and Eastern Europe in an instant! However, behind the glossy figures is a deformed development: the Hungarian economy has completely moved towards a "dual structure", and the gap between productive and technology-intensive multinational corporations and labor-intensive domestic enterprises is widening.
However, as quickly as speculative capital comes, it retreats. The 2008 global financial crisis triggered by the subprime mortgage crisis in the United States ruthlessly punctured the Hungarian bubble, making the former "gold sucker" the hardest hit country in Central and Eastern Europe. The country then fell into a long recession: GDP fell sharply (-6.6% in 2009), unemployment rose to double digits, and population growth was negative – and it was gradually marginalized by Western businesses and capital.
(Figure 6: Hungary's GDP growth rate, inflation rate and active population change rate from 1990 to 2010, where the blue line is GDP growth, the red line is inflation rate, and the yellow line is the active population change rate.) Source: Official EU data)
At that time, the Hungarian government was in a dilemma: a struggling economy on the one hand, and a government on the verge of bankruptcy. If you choose to bail out the market, you will be violating EU rules and face more penalties, and if you choose to borrow from the EU, it may be alleviated in the short term, but long-term austerity will inevitably plunge the economy deeper into the quagmire. On the off hand, the Gyurcsany Ferenc government at the time chose to lend 20 billion euros to the European Union, the International Monetary Fund and the World Bank in an emergency bailout. However, in order to repay its debts, Hungary has had to tighten its belt even further, building on its previous fiscal austerity.
Under the financial crisis, social contradictions have become increasingly intensified. The economy has fallen further into a downturn as the Hungarian government raises tax rates and cuts public spending and wages. As a result, Hungarian industry has completely lost its attractiveness, and many foreign companies have withdrawn their investments. At the same time, higher interest rates on domestic loans led Hungarian consumers and businesses to turn to foreign currency loans, further accelerating the depreciation of the forint. After the withdrawal of foreign investment, the productivity and innovation rate of Hungarian domestic enterprises have regressed one after another, and the unemployment rate has soared by more than 11%, making it one of the lowest employment rates in Europe.
It can be said that these two economic pains in just 20 years after the collapse of the Soviet Union have made the Hungarian elite increasingly realize that both the "east" and the "west" are unreliable trees, and once a subordinate or dependent relationship is formed and the decision-making sovereignty is lost, then the crisis is only a matter of time.
The history of this country has taught us time and time again that the more turbulent the environment, the more it can inspire the indomitable character of the Hungarians. Soon, Hungary ushered in a turning point in its history: the Orban government came to power.
Exceptional leadership behind Hungary's successful transformation
Before Orban came to power in 2010, Hungary could be described as in internal and external difficulties: a bleak economy, capital flight, heavy debts, and resentment among the people.
However, troubled times produce heroes. Viktor Orbán's right-wing Fidesz (Fidesz) burst into the limelight shouting "Itt az ido!". During the election campaign, Orban's team made a series of economic promises: creating 1 million jobs within 10 years, promoting consumer loans, supporting small and medium-sized enterprises, and reducing taxes. In the end, Fidesz lived up to expectations and won the general election with a landslide victory of 265/386 seats, and Orban was sworn in as the new prime minister.
(Figure 7: Orban won the 2010 election.) Source: index)
Immediately after taking office, the Orban government set about a series of changes that impressed the world, and which we believe are the core factors that have contributed to Hungary's historic rise today, which can be summarized in three points:
First, "Albanomics" activates the economy
It is clear to the new government that blindly following the EU and creditor groups to cut spending will not revive the economy, but will further collapse the shattered economy. If you want to change the sluggishness, you must draw wages from the bottom of the kettle and cut through the mess quickly. As a result, in the midst of countless criticisms and doubts, Orban's economic reforms kicked off:
The first is the tax reform, which introduces the lowest corporate tax of 9% and personal income tax of 16% in the EU, and actively creates an investment environment;
The second is the subsidy policy, Hungary has formulated an economic development plan for national capital and multinational enterprises, and the government has attracted foreign investment through a series of measures such as increasing subsidies, and reached strategic cooperation agreements with multinational companies to stabilize investment in the manufacturing industry;
The second is industrial restructuring, in which the government has used public procurement and nationalization to restructure the tobacco, savings cooperatives, and agricultural sectors to stimulate economic activity and support the steady growth of state capital;
(Figure 8: Georges Matolc, President of the Central Bank of Hungary.) Source: MTI)
Finally, there was the financial reform, with the Hungarian central bank, under the leadership of Gyorgy Matolcsy, implementing an expansionary monetary policy that provided financial support for economic growth and created a more favorable monetary environment.
The result?
From the perspective of total investment, from 2010 to 2022, the total investment in Hungary has continued to increase, and after 2016, it has shown a significant upward trend, and the total investment in 2022 is more than three times that of 2010; from the perspective of industrial development, after 2010, Hungary's overall industrial data has continued to improve, with the introduction and consolidation of various favorable policies, the share of industry in the national economic investment has indeed been rising, and the real industrial enterprises have seen a significant increase in both quantity and sales; from the perspective of financial risks, from 2010 to 2018, the interest rate on loans to small and medium-sized enterprises has dropped by 80The banking sector's dependence on FDI has declined significantly, from 90.4 per cent in 2004 to 85 per cent in 2013 and then to 50 per cent in 2015. At the same time, the central bank's self-financing scheme has successfully incentivized banks to put capital into government bonds, thereby reducing the government's dependence on foreign currency debt.
(Figure 9: Total investment in Hungary from 2010 to 2022, in HUF billion.) Source: Statistia)
It can be said that the Hungarian economy has made a beautiful comeback through the in-depth reforms of the Orban government. Not only did they get out of the original pit, but they also improved their autonomy and further developed the domestic market, a series of policies that are also known as "Orbanomics".
Second, Hungary's "re-industrialization" road accurately chooses a breakthrough in the automobile industry
While stabilizing the macroeconomy, Orban has also begun to focus on industrial breakthroughs. Obviously, for Hungary, in order to truly occupy a place in the era of globalization, it must be deeply integrated into the global industrial chain, attract investment from the global manufacturing industry, lay a more solid foundation for Hungary's real economy, and achieve the government's goal of "developing Hungary from a middle-income country to a middle-income country".
In the expectation of all walks of life, the strategy of "re-industrialization" came into being. Faced with low social confidence and the inertia of the unemployed's over-reliance on social welfare, the government has shouted the slogan of rebuilding a "work-based society" (munkaalapú társadalom), supported by policies such as tax cuts to encourage people to return to work and improve their living standards through work.
Population is the biggest challenge on the road to "re-industrialization" in Hungary, and concentrating on an industrial breakthrough is the only option. Due to the declining population and limited labor force and market potential, it is inevitable that we will not be able to follow the path of a big country like China and India. Under such conditions, if we want to vigorously develop industry, we need to choose a breakthrough point more utilitarianly, and once a breakthrough is achieved in an industry, there is a chance to trigger an agglomeration effect, which is enough to support Hungary's prosperity for 30 years.
（图10：匈牙利的奔驰汽车工厂。 来源：Automotive News Europe）
The breakthrough industry chosen by the Orban government is none other than the automotive industry. There are two main factors to consider: first, after the 90s, a large number of global car manufacturers chose Hungary as the core factory in Europe, although the financial crisis led to the withdrawal of many enterprises, but Hungary still has a fairly good industrial base; second, the automotive industry is an industrial policy-sensitive industry, if it can create an investment depression through subsidies, it will inevitably attract a lot of investment in the short term.
This choice proved to be extremely far-sighted. Between 2009 and 2021 alone, employment in Hungary's automotive industry more than doubled, accounting for 25% of the total Hungarian manufacturing output. Hungary's subsidy and tax reduction policy has attracted the favor of many automotive companies. The difference between this wave of industrialization and the 90s is that local suppliers in Hungary have gradually risen, a number of local parts suppliers have emerged, and the entire industrial ecology has become more and more complete.
Third, Hungary's opening-up policy is deeply bound to German industrial giants
If the first handshake between the Magyars and the Germanic peoples led to the flourishing Austro-Hungarian Empire, the second handshake between the two peoples helped lay the foundations for Hungary's industrial revival.
Objectively speaking, the industrial revival after Orban came to power is largely due to the blessing of the German industry, especially the continuous investment of German auto giants. According to official data from the Hungarian Investment Promotion Association (HIPA), between 2014 and the first half of 2022, more than 171 German companies invested in Hungary for a total of 7.86 billion euros and created 32,000 jobs. Today, more than 3,000 German companies operate in Hungary and employ more than 300,000 Hungarians, which means that 1 in 20 Hungarian workers works in a German company.
(Picture 11: Former German Chancellor Angela Merkel shakes hands with Orban.) Source: MTI)
Germany has also become Hungary's number one trading partner, accounting for 24% of Hungary's imports and 27% of its exports. German companies account for 21 percent of total foreign direct investment and are the largest investor in Hungary. Among German companies, the automotive giants are undoubtedly the largest investors: the world's leading car manufacturers such as BMW, Mercedes-Benz, Audi and Stellantis, as well as Tier 1 suppliers such as Bosch, Continental and Kanten, all have production sites in Hungary for complete vehicles or components. Hungary is also the third country to have all three luxury car manufacturing plants of BBA, in addition to Germany and China. In particular, since Audi entered Hungary in 1993, the total investment has exceeded 11.5 billion euros, and Audi has created four times more jobs in Hungary than in Germany!
In order to further promote the upgrading of the country's economy, the Hungarian government not only encourages German companies to invest in setting up factories, but also vigorously promotes German companies to set up technology research and development centers in Hungary. A prime example of this is the Bosch Group, which not only moved its factory back to Miskolc, Hungary, but also employs highly qualified local engineers in its R&D center. In 2025, Bosch will invest an additional 48 million euros to further expand its electric drive development and testing capabilities as well as production capacity.
This road of "factory first, then R&D" is getting smoother and smoother. According to the Hungarian Investment Promotion Agency, between 2010 and 2019, the output value of the Hungarian automotive industry rose by 165%, thanks to the expansion of German companies, generating 2.5% of Hungary's GDP. Of course, at the same time, the subsidies received by companies are also rising, with German companies receiving 122 million euros in subsidies and subsidies in 2019 alone, which is 70% higher than that of local Hungarian companies. At the same time, the number of German companies receiving more than HUF 100 million from the Hungarian government is far higher than that of companies in other countries.
(Figure 12: Country-by-country statistics of companies with more than HUF 100 million from the Hungarian government between 2004 and 2016.) Source: The Budapest Beacon)
German investment in Hungary also extends from industry to higher education. There are currently more than 566 higher education cooperation projects in progress. Andrássy Gyula Deutschsprachige Universität in Budapest is the only German-speaking university outside of a German-speaking country. Germany's prestigious Frauenhofer Institute has also established a project center for management and information technology in Budapest, and a joint venture with the Hungarian SZTAKI Institute for the EPIC InnoLabs consortium.
The revival of the automotive industry has brought economic revival and social stability to Hungary, with the automotive industry accounting for 20% of Hungary's exports and 8% of GDP. I have to admit that this move of the Orban government can be described as a brilliant move, binding the German auto giants through subsidies and low tax models, forming a symbiosis of "German-Hungarian" interests, and then attracting investment in the global auto industry, building Hungary into the "Detroit of Europe", and going further and further on the road to an industrial power.
These changes are closely related to the outstanding leadership of the Orban government, which is also the deep-seated reason why voters have repeatedly supported Orban's re-election in the face of multiple internal and external pressures.
A global perspective on Hungarian battery industry policy
It is not easy to be optimistic about an industry, and it is even more difficult to develop well in the long term and keep up with the pace of the times. Hungary's strong push for the automotive industry and its rapid development of the battery industry is based on a global decision-making capacity.
In 2015, when new energy vehicles first emerged, they attracted the attention of the Hungarian automotive industry and policymakers. After all, the reality in front of us is cruel, for Hungary, which has a weak innovation capacity, in the wave of scientific and technological innovation, the slightest carelessness will face the systemic risk of being completely eliminated. Once the market for petrol vehicles shrinks and the market share of German car companies declines, Hungary will inevitably be the first to be hit. The long-term malaise of the former automobile powerhouses of Britain, France, Slovakia and the Czech Republic is a bloody lesson. According to official estimates, if the Hungarian automotive industry does not adapt to the new situation, then GDP could fall by as much as 10% at most!
(Figure 13: Orban riding in a German Opel electric car.) Source: Auto-Medianportal.Net/Opel)
What's even more troubling for Hungarian policymakers is that even if they succeed in keeping up with the industry transformation and maintain their current share of the automotive manufacturing market, the rise of the electric vehicle industry could still have a major impact on Hungarian society. As the demand for labor from electric vehicles falls, for example, the number of workers required to assemble electric vehicles is 40% less than that of cars with internal combustion engines, this change is bound to put more pressure on Hungarian employment, and the nightmare of unemployment is likely to be repeated.
There is only one way forward for the Orban government: without further ado, it must seek a "re-breakthrough in the industry" in the new energy era - the battery industry. From 2015 to 2016, the Hungarian government began intensive research, established the battery industry alliance, and accelerated the pace to formulate the "National Battery Industry Strategy", the core goal of which is to build Hungary into a "European battery value chain center", achieve decarbonization goals, and promote the development of a sustainable battery value chain.
Péter Kaderják, executive director of the Hungarian Battery Union and a former Orban government official, said: "In the new energy era, the Hungarian and European economies are facing an existential challenge. This game is real. In the new industry, the core is batteries, and Europe is already lagging behind and has missed the opportunity to create a complete value chain. ”
The European automotive industry, represented by German companies, is undoubtedly one step slower on the road of transformation, so instead of continuing to rely on German companies, it is better to start first, look to the East, go to the East, and win over the East. In the face of severe internal and external challenges, the Hungarian government has taken the lead and firmly implemented the policy of "opening up to the east", more precisely, opening up the industrial chain of China, Japan and South Korea represented by China. There are two key points in this decision:
The first is to "open to the east", which is Hungary's most pragmatic strategic choice.
In fact, as early as 2010, when Orban came to power, he broke with Hungary's traditional strategy of relying on the West and proposed the "open to the east" (keleti nyitás politikája), but before 2016, investors from East Asia paid significantly more attention to Western European investment opportunities and had little interest in Central and Eastern European countries.
After preliminary exploration, Hungary understands that in the face of East Asian investors, it is not only necessary to handle bilateral government relations well, but more importantly, to have direct interaction with the industry. Therefore, since 2016, in order to shorten the distance with the new energy industry in East Asia, the Orban government has begun to focus on two hands: on the one hand, it has begun to contact new energy vehicle manufacturers, and on the other hand, it has focused on the battery manufacturing industry, lobbying sub-industry giants to invest in Hungary.
(Figure 14: Hungarian Investment Promotion Agency released 2022 foreign investment data, with South Korea, Germany and Japan as the largest sources of investment.) Source: HIPA)
After understanding some of the concerns of East Asian companies about investing in Europe, such as the adaptation of Hungarian employees to the overtime culture of East Asian companies, the Orban government immediately made policy adjustments to address these issues: the Labor Code was amended, and the Overtime Act was passed by Congress to meet the needs of East Asian companies. In order to better help East Asian companies recruit from Hungary, the Orban government has also passed a series of bills to soften the previous job restriction requirements and only require the level of wages paid.
Soon after, Hungary ushered in a milestone investment - in August 2016, South Korea's Samsung SDI announced a €1.2 billion investment in Göd, Hungary, in order to respond more quickly to the needs of European customers. Samsung's investment laid the cornerstone for Hungary to become a European battery manufacturing hub.
(Figure 15: Xinfu Think Tank statistics on the investment of the Korean battery industry in Hungary, unit: 100 million euros.) Source: Xinfu Think Tank)
If Audi's investment in the 90s of the 20th century helped Hungary get out of the economic quagmire, then Samsung's investment can be said to have helped Hungary seize the opportunity of the new energy era. At the groundbreaking ceremony of Samsung's SDI factory in 2017, Prime Minister Orban said bluntly, "Samsung's investment brings the future to Gede."
Soon, industrial investment in Hungary, with South Korea and Japan as the core, was rapidly developing in Hungary, covering every segment of conductive films, separators, batteries, electrolytes, electrodes, and recycling. According to official figures, from 2016 to 2022, a total of 44 battery plant projects were approved, which received more than 15.2 billion euros of investment for Hungary and added more than 21,000 jobs.
(Figure 16: Xinfu Think Tank statistics on Japanese and U.S. battery industry investment in Hungary, unit: 100 million euros.) Source: Xinfu Think Tank)
In 2019, South Korea overtook Germany to become Hungary's largest source of foreign direct investment, known as the "miracle of bilateral trade". For the next three years, South Korea remained the most important investor in Hungary.
When talking about the reasons why South Korea is investing heavily in Hungary, South Korean Ambassador to Hungary Choi Gyu-sik said that in addition to the superior geographical location and preferential investment policies, Hungary's friendly attitude towards South Korean investors during the epidemic is also crucial. In 2022, South Korea was also the first country in Hungary to lift travel restrictions. This is undoubtedly a decisive factor for Korean investors. ”
（图17：2017年三星匈牙利工厂的奠基仪式。 来源：Hungary Today）
It is no exaggeration to say that the investment of Korean companies has helped Hungary to preemptively fight the epidemic and achieve the first step of transformation.
In 2022, Hungary saw a record high in foreign direct investment, of which 73% went to the battery manufacturing sector. It was also from this year that Hungary completed its strategy of diversifying its partners: 48% of its investments came from East Asia and 42% from the West. Foreign Trade Minister Peter Szijjarto said it was a "healthy" percentage for the Hungarian economy.
Second, through the import of industries from outside, the new energy advantages and global needs of East Asian enterprises such as China have become a catalyst for Hungary's development.
Since 2022, the competition in the domestic market of Chinese battery companies has become fierce, and going overseas has become a choice that has to be made. Looking at the global market, the threshold in North America is constantly rising, and Europe has naturally become a must for the high-end market. Central and Eastern Europe has gradually entered the field of vision of Chinese investors due to its cost-effective advantages.
Debrecen, a small Hungarian city with a population of only 200,000, is becoming a hot spot for Chinese battery companies. Why is it so attractive? In the final analysis, it is thanks to German companies. In 2020, BMW announced an investment of EUR 1 billion to build a mega EV plant in Germany's Northwest Economic Zone, and in 2022, BMW will invest an additional EUR 2 billion.
(Figure 18: The city of Debrecen.) Source: Debrecen)
BMW's choice has had a domino effect on the layout of the entire battery industry: first, as BMW's largest battery supplier, CATL gave up Serbia and Poland and chose to settle in Hungary in order to get closer to customers. CATL's official announcement in August 2022 has completely ignited the enthusiasm of Chinese battery industry chain enterprises to go overseas to Hungary: EVE Lithium Energy, Huasu Technology, Enjie Co., Ltd., Zhenyu Technology, Zhijianeng and others have successively announced investments in Debrecen, and the preliminary estimate is that the investment amount of Chinese enterprises in the city has been close to 9 billion euros. In addition, leading enterprises such as Sunwoda, Guoxuan Hi-Tech, and Huayou Cobalt have also successively stated that they will invest in other cities in Hungary.
For a time, Chinese battery companies flocked to it. According to incomplete statistics, the total investment promised by Chinese battery companies has exceeded the total investment of Korean companies in previous years. This has also pushed the battle between Chinese and South Korean battery companies in the European market to a climax. According to Korean media reports, South Korea will occupy 64% of the European market share in 2022 and is the absolute powerhouse in the European market. With the implementation of Chinese investment, 2025 may be a fundamental shift.
(Figure 19: Xinfu Think Tank statistics on the investment of China's battery industry in Hungary, unit: 100 million euros.) Source: Xinfu Think Tank)
At present, Hungary is attracting global investment, especially Chinese global enterprises, with its sharp opening policy, and it has undoubtedly become a popular destination for Chinese enterprises to go overseas in Europe.
China and South Korea compete for hegemony in Europe, and Hungary reaps the benefits of fishermen. Judging from the results, Hungary has taken five of the world's top 10 battery manufacturers into its arms and successfully promoted to the global lithium battery manufacturing center. Márton Nagy, Hungary's Minister of Economic Development, said: "With the increase in battery production, Hungary's automotive manufacturing sector is likely to grow from about 20% of GDP today to 30% in the medium term. Hungary will become the world's fourth-largest battery manufacturer after the United States, China and Germany. ”
Hungary's battery production capacity is expected to grow sevenfold to 207 gigawatt-hours (GWh) by the end of 2031, with 86% of that capacity expected to come from Tier 1 cell producers, more than any other country in Europe, according to data assessed by third-party agency Benchmark Gigafactory.
（图20：欧洲各国锂电池产量，单位：GWh。 来源：Benchmark Mineral Intelligence）
In the face of huge investment, the Hungarian government has not been idle: not only has it given a median subsidy of up to 15%, but it has also continuously increased investment in infrastructure construction around the factory. For example, CATL's project in Debrecen prompted the Hungarian government to invest HUF 121 billion specifically for the construction of the southern economic zone in Debrecen.
The Hungarian government's "favor" to East Asian companies is based on high expectations: it is hoped that East Asian companies will not only set up production bases in Hungary, but also gradually transfer their R&D activities to the local area, just like German companies. At present, a giant company like Samsung, although it has continued to expand in Hungary in recent years, its engineering team is still mainly made up of Koreans. However, Samsung has also recently stated that it plans to hire thousands of engineers in the local area, especially chemical engineers, in the next few years, and provide them with reasonable starting salaries. At the same time, CATL's R&D center in Germany and its cooperation with the Frauenhofer Institute in Germany have allowed Budapest to see the possibility of a deeper long-term connection with the Chinese industry.
Péter Kaderják, executive director of the Hungarian Battery Alliance, believes that Hungary has a good chance of replicating the success of the previous rebuilding of the automotive industry in the battery value chain: "The most important thing for Hungary is how to ensure sustainability in the economic development of the e-mobility industry, even if the main investors are foreign companies, and to promote the highest possible level of local value added...... The example of the automotive industry is in front of us. After the collapse of the USSR, the automotive industry in Hungary completely disappeared and had to be rebuilt from scratch. German companies came over, and initially they only brought low value-added processes, but in 30 years, our Hungarian added value in the automotive industry has risen to about 30 percent. ”
(Figure 21: SK Innovation's battery plant in Hungary.) (Source: CEENERGY NEWS)
Marton Czirfusz, a researcher at the Friedrich Ebert Stiftung in Germany, also pointed out: "Since battery production is a labor-intensive and low-value-added industry, the development of the battery industry will not improve the position of the entire automotive industry in the value chain, but will move downstream." The auto industry will increasingly move towards 'Foxconnization' – a high proportion of well-trained jobs, low wages, and flexible employment. ”
For Hungary, it is not an easy path to secure a competitive advantage by building up R&D and innovation capabilities. The Hungarian Ministry of Innovation and Technology (ITM) made it clear in its strategy report that "Hungary will inevitably face a tougher test due to the low level of international cooperation, the huge disparity between academic research and industrial R&D needs, and the low level of integration of foreign investment into the local ecosystem".
One of the biggest challenges is the shortage of skilled talent and labor. New factories often require the use of domestic temporary workers to maintain operations. For example, only half of the employees at Samsung's Gede plant are Hungarian citizens, and there are fewer than 100 local residents. CATL's factory in Debrecen faces the same problem, where the population of a small town is only a few thousand and unemployment is extremely low, so how to recruit workers has become a key consideration.
In addition, Hungarian society is still relatively resistant to large-scale foreigners. In May 2023, the Orban government introduced a draft law on migrant workers to allow investment companies to bring in domestic workers, technicians and management for the construction and management of factories. However, due to resistance from public opinion in the country, it was finally withdrawn before the implementation on November 1.
Undoubtedly, this will bring more uncertainties to the road of investment, construction and operation of many Chinese enterprises.
(Figure 22: Xinfu Think Tank statistics of Hungarian battery value chain manufacturers, source: Xinfu Think Tank)
Despite the challenges, Hungary's achievements in recent years are remarkable and impressive when looking back at the end of 2023. Nowadays, Hungary has not only gained a firm foothold in the battery industry, but more importantly, it has formed a strong attraction in the field of new energy vehicles.
In this battle for the accelerated transformation of the European auto market, Hungary not only took the lead, but also relied on the policy of opening up to the east and successfully introduced East Asian giants to join and stand out from European countries. The EV manufacturing ecosystem is becoming more and more complete, and it has gradually developed into a meeting point between European automakers and East Asian battery manufacturers, which may be the fundamental reason for BYD's investment in Hungary, which can not only use Hungary as a bridgehead to enter Europe, but also rely on the rapid development of the Hungarian automotive industry chain for global layout.
At present, from the perspective of Chinese enterprises, Hungary has become an ideal entry point for Chinese enterprises to enter and explore the European market. As the Hungarian ambassador to China, Philip Blasdi, put it, "It has the lowest corporate tax rates, a business-friendly environment, a cost-effective and flexible workforce, a unique geographical location and one of the most competitive subsidy regimes in the EU".
At the end of the article, we sincerely look forward to the future of industrial cooperation between China and Hungary. Hungary, as an open window for Chinese companies to go overseas to Europe and North America in the future, will inevitably move towards the core of the global electric vehicle supply chain with the in-depth participation of Chinese enterprises!
The friendship between China and Hungary, in the atmosphere of win-win cooperation in the new era, will inevitably pass through history and endure for a long time.