Author | Liu Jingfeng
Edit | weber
"Chinese companies are coming to Hungary in droves."
This is a sentence specifically mentioned in a report by the Hungarian Daily News on May 13 after China's top leader recently visited Hungary.
As a bridgehead for Chinese enterprises to enter Europe, Hungary has become a new hot spot for Chinese enterprises to go overseas.
How fast is the number of Chinese companies growing in Hungary? According to a set of data from local Hungarian media Pénzcentrum.hu, nearly 600 Chinese companies have set up operations in Hungary, and more than 85% of them were registered after 2010.
The turnover of these Chinese companies based in Hungary has also increased dramatically in recent years: the two most profitable sectors are manufacturing and construction, with the former accounting for 70% of the total turnover and the latter accounting for 20% of the total. In 2022, the sales of Chinese-funded enterprises in Hungary exceeded 45 billion forints (915 million yuan), more than three times the turnover of the previous year.
In May, the Chinese leader visited Hungary, and the two countries established the "all-weather comprehensive strategic partnership in the new era", which made this Central European country, which is only the size of China's Zhejiang Province, stand out from other European powers and enter the field of vision of Chinese enterprises going overseas.
As one of the China-friendly EU countries, Hungary launched the "Open to the East" policy as early as 2011; Subsequently, in 2015, it became the first European country to join the Belt and Road Initiative and sign a memorandum of understanding. In addition, it has a strong industrial base, especially in the automotive industry, which is almost second only to Germany in Europe.
With China and Hungary entering into a new partnership, what is the charm of this Central European country? Which Chinese companies are flocking here? What are the opportunities for Chinese companies in the long run? In this article, let's learn about these issues together.
Hungary, located in the center of the European map, is known as the "crossroads" connecting East and West.
Hungary has a land area of 93,000 square kilometers, slightly smaller than China's Zhejiang (105,500 square kilometers), and Hungary has a population of 9.68 million, compared to 12.5 million in Hangzhou, the capital of Zhejiang province. It can be seen that Hungary can only be regarded as a small country in terms of area and population.
But it is such a small European country, but it has 600 Chinese-funded enterprises. Among them, there are many large Chinese companies such as BYD, CATL, and Lenovo.
This stems from a revolution a decade ago.
In terms of economic and social system, Hungary, like the rest of Europe, is a capitalist country. It joined NATO in 1999 and the European Union in 2004 and integrated into the European economic system. Since then, a large number of capitals from Europe, the United States, Japan and South Korea have poured into Hungary, and they have gradually grasped the right to speak in Hungary's automobile, electronics, chemical and other industries. After the outbreak of the global financial crisis in 2008, Hungary began to reflect on the disadvantages of over-reliance on the European Union. After being elected prime minister of Hungary, Viktor launched the "Open to the East" policy in 2011.
How good are Hungary's relations with China? There are a few things that are talked about:
In 2013, China proposed the Belt and Road Initiative, and in 2015, Hungary became the first European country to join the Belt and Road Initiative and sign a memorandum of understanding. In 2021, the EU issued a statement trying to interfere in China's internal affairs, and as a result, Hungary, as a member of the EU, voted against it three times. Another thing is that Chinese is extremely common here, becoming the second language of some people, and some locals will think that their ancestors are from China, descended from the Huns, and are jokingly called "in the European Union and in Han" by Chinese netizens.
Street view of Budapest. Source: pixabay
Thanks to these political and cultural mutual trusts, Chinese companies have been able to quickly land in Hungary.
According to the local OPTEN company registration database, the number of Chinese companies operating in Hungary in 2023 showed a steady growth trend. Local media Pénzcentrum.hu said that the Chinese company that has been operating in Hungary for more than 30 years has been the longest, and so far nearly 600 companies in Hungary have at least one Chinese owner. More than 85 percent of the 600 companies with Chinese backgrounds were registered after 2010. "Since 2010, the number of new companies set up in Hungary has changed dramatically, and more and more Chinese companies are choosing Hungary," says Csaba Alföldi, Business Information Specialist at OPTEN.
Most of these businesses (80% of the total) are registered in Budapest, where the blue Danube runs through the city. The second most popular area for Chinese entrepreneurs is Jonglad-Canard County. Chinese companies choose these two regions mainly because of the active trade and convenient accommodation services.
The vast majority of these Chinese companies in Hungary are engaged in manufacturing and construction. According to the data, the total sales of Chinese-funded enterprises in Hungary in 2022 exceeded 45 billion forints (915 million yuan), more than three times the turnover of the previous year. Among them, the two most profitable industries are manufacturing and construction, with the former accounting for 70% of the total turnover and the latter accounting for 20% of the total.
Another dimension shows the rapid growth of these two sectors in Hungary. According to Pénzcentrum.hu, the output of the Hungarian manufacturing sector tripled in 2022 compared to 2021, while the output of the construction sector increased almost ninefold. "Even without statistics, it is well known that trade and real estate are also targets for Chinese investors, and this is a problem that individuals face on a daily basis. While trade remains the main activity of Chinese companies established in 2020 and beyond, the manufacturing sector is gaining traction, ranking second on the podium for new entrants. Csaba Alföldi said.
In a report in October 2022, 21st Century Business Herald interviewed an overseas Chinese Mr. Lin in Europe and told him about his feelings. Running a Chinese restaurant in the centre of Budapest, he has noticed an increasing number of Chinese customers, "unlike tourists, who mainly come to Hungary to inspect investments or preparatory work." For example, in the CATL era, some time ago, many of them came from China to prepare for new projects, and they were stationed near here, and often came here for working meals. ”
This year, with the establishment of the "All-Weather Comprehensive Strategic Partnership in the New Era" between China and Hungary, it is foreseeable that Hungary will also become a new hot spot for Chinese enterprises to go overseas.
The fastest flight from China to Hungary takes 12 hours.
At present, there are four cities in China that have opened direct flights to Hungary, namely Beijing, Shanghai, Chongqing and Ningbo. There are at least 19 direct flights per week.
It is said that by the second half of this year, China Southern Airlines will launch flights from Guangzhou to Budapest. In addition, Xi'an and Shenzhen will also have direct flights to and from Budapest. At that time, there will be seven direct flights between China and Hungary.
The convenience of air traffic will greatly facilitate the business investigation of Chinese enterprises in Hungary.
Among the four cities that currently fly directly to Hungary, Ningbo is a special one, which is more driven by business and trade cooperation.
As early as November 2015, Ningbo Airport and Budapest Airport of Hungary signed a memorandum of cooperation, and the two sides became sister airports, and the two airports achieved comprehensive cooperation in market development, route planning, and personnel exchanges in the field of passenger and cargo. In May 2021, Ningbo opened a cargo route to and from Budapest, and the first flight was loaded with epidemic prevention materials, daily necessities, and cross-border e-commerce goods to Budapest.
In July 2022, when the domestic epidemic had not yet been lifted, in order to open up the foreign trade market, the Ningbo government led a team and organized the first batch of business delegations to go abroad to "grab orders". This group of business delegations includes more than 600 business leaders, who rushed to many European countries, including Hungary, by charter flights, taking the first step for enterprises to organize groups to go abroad to grab orders.
This trip to Europe allowed Ningbo enterprises to reach an order amount of 2 billion US dollars with European customers. Since then, China's provinces and cities have set off a wave of government groups going to sea.
In February this year, the Suzhou Municipal Bureau of Commerce organized enterprises to go to Central and Eastern Europe, leading a number of local cleaning electrical appliances enterprises such as Lake, Timke, and Chunju to Poland and Hungary to connect with local head retailers and business associations.
In the past, Suzhou's cooperative customers in Europe were mainly in markets such as Germany. However, in recent years, with the changes in international relations, the volume of cooperation between China and Germany has been declining, and the volume of cooperation with emerging markets of Central and Eastern European countries such as Hungary and Poland has been increasing. At the matchmaking meeting, a Hungarian entrepreneur said that this is the first time that a Chinese small household appliance delegation has come to Hungary to hold relevant activities, which has given them a deep understanding of the quality of "Made in Suzhou" products and a further understanding of Suzhou city.
In addition to Suzhou, just past April, the Hungarian Expo Bureau and the Shenzhen Battery Industry Association held the "Hungarian Renewable Energy Enterprise Investment Summit and Zero Carbon Planet Carbon Reduction Summit" at the Budapest Exhibition Center. During the summit, the Shenzhen Battery Industry Association reached a cooperation intention with the largest channel provider in Europe.
Shenzhen is the most active place for cutting-edge scientific and technological innovation in China, especially in the hot new energy industry in recent years, with more than 4,000 enterprises in the upstream and downstream of the lithium battery industry chain. Previously, Shenzhen enterprises such as Huawei, BYD, and Kodali have successively invested and cooperated in Hungary. This year, dozens of Shenzhen new energy industries and enterprises such as Huabao, Huamei Xingtai and Shangshui have also formed a group to go to Hungary.
With the tide of Chinese enterprises going overseas, the role of the government in it has gradually deepened, and more and more governments have begun to play the role of organizers and have led teams to organize enterprises to go overseas. And this endorsement effect has also greatly improved the efficiency of Chinese enterprises going overseas.
What is Hungary's most distinctive industry?
It used to be medical. There is a set of data that shows how good Hungarian medical care is in the world.
At present, Hungary has produced a total of 17 Nobel laureates. With a population of 10 million, it is the country with the highest number of Nobel Prize winners per capita in the world. Of the 17 Nobel laureates, five are in physiology or medicine, five are in chemistry, and four are in physics.
It is difficult to find such a high-density medical research capacity in the world, and Budapest continues to be ranked at the top of the list of the world's most competitive cities for biomedical technology.
Among the Hungarian medical services, dentists are the most proud. It is said that more than 2.2 million people from all over the world come to Hungary every year to soak in the hot springs.
Budapest on the banks of the Danube. Source: pixabay
At the same time, Hungary has a long history of pharmaceutical industry, and the world's largest pharmaceutical companies such as Sanofi, GlaxoSmithKline, and Mylan are all based in Hungary. It is worth mentioning that Hungary is the first EU country to pass traditional Chinese medicine legislation, and the popularity of traditional Chinese medicine products in Hungary is relatively high.
Now, with the influx of Chinese companies into Hungary, a new industry is becoming another calling card of the country - new energy.
According to data released by Bloomberg New Energy Finance, in 2022, China, Poland and the United States ranked among the top three in the world in terms of battery production capacity, of which China accounted for 77%, and Poland and the United States both accounted for 6%. Hungary, which ranks fourth, produces 38GWh of cells, accounting for 3% of the global total.
However, this pattern may soon be rewritten. Starting from 2022, a large number of well-known Chinese power battery companies have entered Hungary.
Cars on the streets of Budapest. Source: pixabay
In August 2022, CATL announced that it would invest no more than 7.34 billion euros in a new 100GWh battery factory in Debrecen, which will become the largest battery factory in Europe after completion. This is also the second overseas plant after CATL's battery plant in Thuringia, Germany. Construction of the plant will begin in the summer of 2023, with a trial run in 2024 and production in 2025. After the start of production, CATL's local battery production capacity in Europe will be quadrupled.
Just across the road is the Agile plant in Hungary. Yunnan NXT is the world's largest lithium battery separator company. In September 2021, the company invested 183 million euros in Debrecen to build a lithium battery separator production base, with an annual production capacity of 50,000 square meters, and the project plans to build 4 fully automatic imported film production lines and more than 30 coating production lines. At present, the Hungarian factory has been put into operation, producing key wet base films and functionally coated separators for power lithium batteries, and is an important supplier to EVE, CATL and other battery manufacturers. In addition, the company has signed a large order with France's Automotive Cells Company (ACC), a new battery player in Europe.
Speaking of which, I have to mention another Chinese battery head manufacturer, EVE. EVE's Hungarian factory is a 20-minute drive from NXT's Hungarian factory. In November 2023, the 45-hectare Debrecen battery plant broke ground with a total investment of more than 7.5 billion yuan. EVE's Hungarian plant is scheduled to start production in 2026 to produce 46mm large cylindrical batteries and supply the adjacent BMW Hungarian plant, which is expected to open in 2025 – a typical case of a Tier 1 supplier following an OEM to build a factory overseas. When completed, BMW's Debrecen plant will be the second largest automotive plant in Europe, with an annual production capacity of 150,000 new-generation Neue Klasse electric models.
Another thing that has attracted much attention in Hungary is BYD's Hungarian project. On Christmas Eve 2023, BYD announced that it will build a new energy passenger car production base in Szeged, the third largest city in southern Hungary, becoming the first Chinese company to have passenger vehicle production capacity in the European Union and the largest Chinese investment in Hungary so far. The total investment in the project is said to be more than 5 billion euros and is expected to require 9,000 employees. The plant is scheduled to start production within three years and has an all-electric production capacity of 200,000 units per year, which is almost one-third of the total production capacity of Volkswagen's headquarters in Wolfsburg, Germany, and will replace BMW's Debrecen plant as the second largest car manufacturing base in Europe. On May 9, 2024, Shu Youxing, general manager of BYD Europe, revealed to the media that it will build a second passenger car factory in Europe in 2025 and aim to become a leading European automaker by 2030.
BYD's new energy passenger car plant. Source: BYD's official website
In addition, Shenzhen Kedali, a leading supplier of battery structural parts, Nanjing Chervon, a manufacturer of metal casting parts and modules for electric vehicles, and Shanghai Baolong Technology, a sensor manufacturer, have also completed the establishment of factories and production in Hungary. An upstream and downstream industrial chain around power batteries and new energy vehicles is taking shape in Hungary.
More than 740 automobile and parts manufacturers have gathered here, and 14 of the world's top 20 automobile manufacturers have vehicle or parts production bases in Hungary, including BMW, Mercedes-Benz, Audi, Stellantis Group, etc., and BYD and NIO from China have also become one of them. Hungary has also become a bridgehead for Chinese car companies to enter Europe.
Hungary's ambitions are emerging – the Consul General of the Hungarian Consulate General in Shanghai, Bo Lan, said at a public event at the end of last year that in the future, 30% of the country's national economy will come from the automotive industry.
One of the reasons why many car companies are interested in Hungary is because of its location.
In the eyes of those Chinese companies that have successfully invested in Hungary, Hungary is located in the center of Europe, a bridge between the Eastern and Western markets, with a lower entry threshold than the Western European market, and can quickly integrate into the EU's internal industrial division of labor system; It has a good supporting foundation for manufacturing and other industries, low-cost and high-quality talents, and is closer to European customers, and can respond to customer needs in a timely manner.
In the past, due to the lack of land transportation capacity, Chinese commercial products, including automobiles, were exported to Europe, the Middle East, Africa and other places, mainly by sea. The advantage of sea freight is that the transportation cost is low and the volume is large. However, maritime transportation is easily affected by climate change, geopolitics and other factors, and has low controllability.
When Chinese companies set up factories in Hungary, car companies can solve supply chain problems through land transportation such as railways, and have more control.
The advantage of rail transport is that it not only facilitates investment opportunities in transportation infrastructure, logistics hubs, and long-term global interaction and communication networks, but also creates a dense network of regular freight trains to facilitate and facilitate long-distance commercial activity along the line. This will help optimize supply chain operations to revolutionize the way goods are transported and change the sourcing landscape in the domestic and international automotive industry.
Railways are already very convenient to travel from Hungary to the rest of Europe. From Keleti pályaudvar train station in Budapest, you can reach Salzburg, Vienna (Austria), Varna (Bulgaria), Split, Zagreb (Croatia), Prague (Czech Republic), Berlin, Hamburg, Munich (Germany), Venice (Italy), Warsaw (Poland), Bratislava (Slovakia), Ljubljana (Slovenia), Zurich (Switzerland) and other international cities.
Railways in Budapest. Source: pixabay
This visit also promoted the construction of railways between the two countries. According to the "Hungarian Daily News", Hungarian Foreign Minister Szijjártó recently said that preparations will begin for the Hungarian-Chinese project to build a railway ring around Budapest. He said that this ring is needed to make the transportation between China's large investments in the eastern region of Hungary and the western market more efficient and sustainable.
"Hungary is the logistics and transportation hub of Central and Eastern Europe, connecting eight countries including Romania and Serbia. We regard Hungary as an important node on the China-Europe freight train. As an international railway logistics service provider, Shao Yifeng, general manager of Ningbo Tieda Supply Chain Management Co., Ltd., once told the media. With the layout of China's new energy vehicle industry chain to Europe, Tieda has carried many supporting products sent to Europe by Ningbo auto parts enterprises.
In theory, Hungary's New Silk Road, together with its railway network, provides a solid basis for strengthening cooperation in automotive services and logistics supply chains. According to researchers, if Hungary spends its revenues on railway modernization, it will help improve mobility within and outside the region, make transactions more efficient, and attract foreign investment, which is ultimately expected to make Hungary an important logistics hub in Europe.
This is an extremely tempting grand strategy. With the rise of this logistics hub, commerce connecting Asia and Europe will take on a new look. For Chinese companies, there is an opportunity.