The document offers a comprehensive analysis of Hungary’s economic landscape, focusing on its emergence as a strategic entry point for multinational companies, particularly in the automotive and battery industries. It provides a detailed historical context, highlighting Hungary’s transition from economic distress to becoming a center of international capital investment. The impact of the Orbán government’s reforms, known as “Orbánomics,” is thoroughly examined, shedding light on the specific policies and strategies that have revitalized the economy and attracted foreign investment.
Furthermore, the paper delves into the challenges and opportunities for Chinese companies, such as CATL, in localizing their operations in Hungary. It provides insights into labor dynamics, technology integration, and community engagement, offering a nuanced understanding of the complexities involved in the localization process. The strategic appeal of Hungary for Chinese investors is explored in depth, emphasizing the country’s unique position as an entry point to the European market and the potential for global expansion. The document also addresses potential obstacles and complexities of the localization process in Hungary, encompassing regulatory, environmental, and social considerations that Chinese investors must navigate.
Additionally, the internal divisions within the ruling party in Hungary and opposition to foreign investment projects are discussed, providing a comprehensive view of the intricate landscape of business localization in Hungary. Overall, the document offers a detailed and multifaceted analysis of Hungary’s economic development and its strategic appeal for Chinese investors, while also highlighting the challenges and complexities involved in the localization process.
PREFACE
On 22 December 2023, Chinese automotive giant BYD announced that it would build a world-leading new energy vehicle manufacturing base in Hungary, which immediately attracted the attention of domestic and international media. Europe, as the beating heart center of the global automotive industry, has increasingly felt competitive pressure from China. At the same time, the global expansion of China’s new energy vehicle industry has become a hot topic for 2024.
Why did BYD choose Hungary for its expansion? This is a question that many people ask, because Hungary is still an unfamiliar name to the average Chinese.
Hungary is really a “small landlocked country”: with a population of 9.7 million, like the population of the city of Jinan; with an area of 93,000 square kilometers, it is slightly smaller than Zhejiang Province; it has no access to the sea; and it is surrounded by 6 countries, similar to the situation in Shanxi Province. Obviously, Hungary is not a country blessed with good conditions. However, in recent years, thanks to the successful national strategy of the Orbán government, this small country has shown an unprecedented “big vision” and has become one of the centers of the automotive industry and an indispensable entry market for many multinational companies.
In 2022 and 2023, Hungary reached record levels of foreign direct investment (FDI). According to official data published by the Ministry of Foreign Affairs and Trade, Hungary concluded 92 major FDI transactions totalling EUR 6.5 billion in 2022 and EUR 13 billion in 2023. And the 2022 Global FDI Report published by the World Economic Forum shows that Hungary is among the world’s leading countries with an average FDI growth rate of 7.96% from 2013 to 2022.
2022 was also an important year for Chinese investment in Hungary: BYD, CATL, EVE Energy, Sunwoda Electronic, Semcorp, Huayou Cobalt, Zhejiang Hangke Technologies and other companies announced investment and factory construction plans in Hungary one after another. Some insiders jokingly said that Chinese EV companies “have either already built or are on their way to build factories in Hungary”. It should be noted that since the Orbán government took office, cooperation between China and Hungary has made great progress and has been upgraded.
Why has Hungary been able to attract major investments from Chinese technology giants such as BYD and CATL at a time of global economic gloom? What are the underlying reasons? What is the reality of the Chinese companies’ investments? What are the challenges facing Chinese investors?
This paper – based on the exchanges with officials of the Hungarian government, our long-term research on global strategies of multinational companies and consulting Sinnvoll Think Tank will combine we start by analysing the development of the Hungarian economy to see how the economic situation and industrial policy have evolved over the past three decades. We will then focus on the development of the automotive and battery industries. After that, we will go through the situation of CATL’s battery plant to understand the challenges faced by local Chinese companies.
We would like to offer our readers a balanced view of the Hungarian market and help Chinese companies better understand how to develop their global strategies to localise their production, management and communication in the European market.
I. MAGYAR AWAKENING IN PAIN
To understand Hungary, it is essential to understand its history. Situated in the heart of Central Europe, at the crossroads of various Eurasian ethnic groups, it was destined to be exceptional, and its history was destined to be full of ups and downs.
Hungary’s development has been influenced by both Eastern and Western cultures throughout its long history. In the 5th century AD, Attila the Hun settled his tribe in Hungary and established a powerful Hun Empire. Later, in the 9th century, the Magyars migrated to Hungary and became the main ethnic group of today’s Hungary. In the course of the centuries, the country was subject to Germanic invasions from the West, Slavic invasions from the North, and Mongolian and Turkish invasions from the East.
Hungary first aligned itself with the European powers in the 19th century. At the time, aristocratic forces in Hungary were dissatisfied with the rule of the Habsburg dynasty of Austria. The Hungarian Revolution of 1848 was led by aristocratic forces who were inspired by the revolutionary poet Petőfi’s slogan ‘Life is precious, love is worth more, both can be abandoned for freedom’. The Austrian emperor eventually opted for a compromise after facing stubborn Hungarian generals. In 1867, the AustroHungarian Empire was established, formally transforming Hungary from a vassal state to a sovereign state on an equal footing with Austria. This granted Hungary de facto independence in legislation, justice, administration, customs, coinage, and other areas.
The Austro-Hungarian Empire was once a great power, with the second largest territory and the third largest population and industry in Europe. However, its success was short-lived. In the First World War, the empire suffered defeat, resulting in Hungary losing 74% of its territory and 62% of its population. During the Second World War, Hungary was once again plunged into war, resulting in the loss of nearly 2 million lives and a third of its territory. In 1945, following the expulsion of the Nazis, Hungary became a satellite state of the Soviet Union.
However, the Hungarian people’s persistent nature could not be suppressed by the Iron Curtain. In October 1956, the Hungarian Revolution erupted once again, with hundreds of thousands taking to the streets, much to the shock of Khrushchev. Although it ultimately concluded with major Soviet intervention, the Hungarian people’s determination to resist was evident. After the end of the Cold War, Hungary opted to return to the West in accordance with public sentiment.
However, Hungary’s return to the Western world did not solve all of its problems. While disengaging from the Soviet Union, the country was also experiencing acute economic pain. Following the collapse of the Soviet Union in 1989, Hungarian goods, which had originally benefited from Soviet subsidies and a domestic market, suddenly lost their competitive advantage and over 70% of their foreign markets. According to statistics, the GDP experienced a significant decline of 18% from 1990 to 1993. This led to the closure of numerous factories, resulting in 800,000 job losses and a surge in the unemployment rate from 1.7% to 12%. In response to the economic crisis, the country had to make severe cuts in public spending, leading to the disappearance of social services and widespread discontent among the population.
However, Hungary’s return to the Western world did not solve all of its problems. While disengaging from the Soviet Union, the country was also experiencing acute economic pain. Following the collapse of the Soviet Union in 1989, Hungarian goods, which had originally benefited from Soviet subsidies and a domestic market, suddenly lost their competitive advantage and over 70% of their foreign markets. According to statistics, the GDP experienced a significant decline of 18% from 1990 to 1993. This led to the closure of numerous factories, resulting in 800,000 job losses and a surge in the unemployment rate from 1.7% to 12%. In response to the economic crisis, the country had to make severe cuts in public spending, leading to the disappearance of social services and widespread discontent among the population.
During the following decade, Hungary underwent significant market reforms under the leadership of Antall József, Péter Boross, and Gyula Horn. These reforms included trade liberalisation, tax reform, the establishment of market-oriented banks, accelerated privatisation of state-owned enterprises, and the introduction of an export-friendly exchange rate regime. The implementation of these measures helped the Hungarian economy to gradually recover in the late 1990s.
By leveraging its affordable workforce, tax incentives, and strong infrastructure, Hungary has successfully drawn foreign investment from Germany, the United States, and other nations, making up over one-third of foreign direct investment in Central and Eastern Europe. This trend persisted until 2007, during which FDI represented 51.8% of Hungary’s GDP, propelling the country from lower-middle-income to uppermiddle-income status.
In order for Hungary to be recognised as a Western country, it was necessary for them to integrate their economy with the EU. Joining the EU was the most convincing way for Hungary to achieve this goal. Hungary submitted their application for membership in 1994 and began negotiations with Brussels in 1998.
At the time, Hungary did not anticipate that joining the EU would mark the beginning of its second economic ordeal. As a candidate country, Hungary had to implement extensive reforms in over thirty areas to meet EU requirements. However, the EU’s ‘Maastricht criteria’ dealt the biggest blow to the fledgling Hungarian economy: government debt should not exceed 60% of GDP, and the government budget deficit should not exceed 3% of GDP. It is important to note that the implementation of strict austerity policies was a setback for the Hungarian economy, which still required macroeconomic regulation and support.
The decision to integrate with the EU has proven to be a double-edged sword, with both advantages and disadvantages for the country.
Despite becoming a hotbed of international capital investment, Hungary’s industrial transformation slowed due to annual austerity measures imposed by the government and accelerated privatisation. Speculative capital steadily increased their financial investment in Hungary, eventually controlling over 90% of the banks. Despite the impressive GDP and FDI growth figures, the Hungarian economy was found to be divided into a ‘dual structure’, with a growing disparity between the productivity-driven and technology-intensive multinationals and the labour-intensive domestic companies
However, the influx of speculative capital is often short-lived, as it can quickly leave just as fast as it arrived. The global financial crisis, which was triggered by the U.S. subprime mortgage crisis in 2008, had a devastating impact on Hungary. The country, which was once a regional hub for foreign direct investment, was hit the hardest in Central and Eastern Europe. As a result, Hungary fell into a prolonged recession, with GDP plummeting by 6.6% in 2009, unemployment rates soaring into double digits, and negative population growth. Consequently, European and Northern American business and capital gradually marginalized the country.
In the aftermath of the 2008 financial crisis, the Hungarian government faced a dilemma: on the one hand, the economy was in decline, and on the other, the government was on the verge of bankruptcy. If they chose to bail out the market, they would have to break EU rules and face more punitive measures. If they chose to borrow from the EU, this might provide short-term relief, but long-term austerity would inevitably further entangle the economy. Nevertheless, Ferenc Gyurcsany’s government opted to seek €20 billion in emergency loans from the European Union, the International Monetary Fund and the World Bank to alleviate the immediate crisis.
However, in order to repay the debt, Hungary has had to tighten its belt even more than before.
Social conflicts intensified during the financial crisis. Despite the Hungarian government raising tax rates, cutting public spending, and reducing wages, the economy continued to stagnate. These measures also made Hungary’s industrial sector unattractive, leading to the withdrawal of foreign investment by many multinational companies, such as Robert Bosch.
Simultaneously, as interest rates on domestic loans increased, Hungarian consumers and businesses turned to foreign currency loans, exacerbating the depreciation of the Hungarian currency, the forint. The withdrawal of foreign investment led to a decline in productivity and innovation rates among Hungarian domestic firms, and the unemployment rate rose to over 11%, one of the highest in Europe.
The economic difficulties following the dissolution of the Soviet Union have led many Hungarian elites to question the reliability of both the Soviet Union and the EU in the long-term: Once a subordinate or dependent relationship is established and decision-making sovereignty is lost, a crisis is likely to occur. The question remains: did Hungary sink therefore as a result?
The history of Hungary demonstrates that turbulent environments often stimulate the indomitable character of its people. Hungary experienced a turning point in its history with the election of the Orban government.
Ⅱ. STRATEGIC LEADERSHIP BEHIND HUNGARY’S ECONOMIC REVIVAL
Looking back to before Viktor Orbán took office in 2010, Hungary was in a state of internal and external distress: a poor economy, capital flight, high debt and widespread public resentment. However, in hard times, heroes are born. The rightwing Alliance of Young Democrats (FIDESZ), led by Viktor Orbán, burst onto the scene shouting “The time has come! (Itt az ido!)” During the election campaign, Orbán’s team made several economic promises, including creating one million jobs in 10 years, boosting consumer credit, supporting small and medium-sized enterprises, and reducing the tax burden. Later, FIDESZ won a resounding victory in the parliamentary elections with 265 out of 386 seats, and Orbán was sworn in as the new prime minister.
Upon taking office, the Orbán government implemented a series of reforms that garnered global attention and are considered pivotal to Hungary’s historic ascent. These reforms can be condensed into three main points:
The first step is to activate the economy through “Orbánomics”.
The new government recognised that blindly following the EU and creditor organisations in cutting spending would not revive the economy, but would push it further towards collapse. To bring about change, drastic measures were needed. Orbán’s economic reform began amidst much criticism and doubt.
Firstly, Hungary has introduced the lowest corporate tax rate in the EU at 9% and a personal income tax rate of 16%, creating an investmentfriendly environment.
Next is the subsidy policy. Hungary has developed an economic plan for state and multinational companies. The government has taken several measures, including increasing subsidies to attract foreign investment and entering into strategic cooperation agreements with multinational companies to stabilize investment in the manufacturing industry.
There has been industrial restructuring. The government restructured the tobacco, savings, and agricultural sectors, which stimulated economic activity and supported the steady growth of state capital.
The last aspect of reform concerns the financial sector. Gyorgy Matolcsy, the Governor of the Hungarian National Bank, implemented an expansionary monetary policy to support economic growth and create a more favourable monetary environment. As a result, Hungary’s total investment has steadily increased since 2010, with a further acceleration since 2016. In 2022, total investment was more than three times higher than in 2010.
Since 2010, Hungary’s industrial data has consistently improved. The introduction of favourable policies and consolidation has led to a steady increase in the share of industry in the national economic output. The number and turnover of tangible industrial enterprises have also grown significantly.
Regarding financial risks, SME loan interest rates decreased by 80% from 2010 to 2018. Additionally, banks’ reliance on foreign direct investment decreased from 90.4% in 2004 to 85% in 2013, and then sharply to 50% in 2015. The central bank’s selffinancing plan has successfully encouraged banks to invest capital in government bonds, reducing the government’s dependence on foreign currency debt.
The Orbán government’s profound reforms have turned around the Hungarian economy. It has not only recovered from its initial downturn but has also increased its autonomy and developed the domestic market. These policies are collectively known as ‘Orbanomics’.
Hungary has chosen the car industry as a focus for re-industrialising the country.
While stabilising the macro-economy, Orbán also focused on industrial breakthroughs. It was clear that Hungary needed to deeply integrate with the global industrial supply chain, attract investment in manufacturing for global markets, lay a more solid foundation for Hungary’s real economy, and achieve the government’s desired goal of developing Hungary from a middle-income country to a middle power.
The concept of ‘re-industrialisation’ emerged as a response to the expectations of Hungarian society. The government introduced the slogan of rebuilding a ‘work-based society’ (munkaalapú társadalom) to reduce excessive welfare dependency among the unemployed. Tax cuts and other measures were implemented to encourage individuals to focus on work and improve their standard of living through employment. To develop its industry vigorously, Hungary must focus its efforts on achieving industrial breakthroughs. Due to limited labour and market potential, Hungary cannot follow the path of major industrial powers such as China and India. Therefore, it is necessary to select breakthrough points in a more utilitarian way. Once a breakthrough is made in an industry, it has the potential to trigger an agglomeration effect that can sustain Hungary’s prosperity for decades.
The car industry was the breakthrough industry chosen by the Orbán government.
The main considerations were: On one hand, many global car manufacturers have chosen Hungary as their core manufacturing location in Europe since the 1990s. Despite many companies withdrawing due to the financial crisis, Hungary still has a strong industrial base. On the other hand, the automotive industry is a politically sensitive sector. If subsidies can create investment opportunities, they will inevitably attract a large amount of investment in the short term. In fact, this decision was very far-sighted. Between 2009 and 2021 alone, employment in Hungary’s automotive industry will more than double, accounting for 25% of the value of the country’s total manufacturing output. Hungary’s policy of subsidies and tax breaks has attracted many automotive companies. The main difference between this current wave of industrialisation and that of the 1990s is the emergence of domestic suppliers in Hungary. This has led to the development of a strong domestic supplier base and a more complete industrial ecosystem.
The third is that Hungary’s open policy has deeply involved German industrial giants.
The initial handshake between Magyars and Germans led to the creation of the once-flourishing Austro-Hungarian Empire. Similarly, the second handshake between the two nations helped lay the foundations for Hungary’s industrial revival. It is objectively evident that Orbán’s industrial revival, after taking office, has greatly benefited from the support of German industry, particularly the continued investment of German automotive giants. According to official data from the Hungarian Investment Promotion Agency (HIPA), over the period of 2014 to the first half of 2022, more than 171 German companies invested a total of 7.86 billion euros in Hungary, creating 32,000 jobs. Currently, over 3,000 German companies operate in Hungary, employing more than 300,000 Hungarian workers. This highlights the significant influence and link between the Hungarian and German economies, as one out of every 20 Hungarian workers is employed by a German company.
Germany is Hungary’s largest trading partner, accounting for 24% of imports and 27% of exports. German companies are the largest investors in Hungary, accounting for 21% of total foreign direct investment. The automotive industry is the largest investor among German companies. BMW, MercedesBenz, Audi, Stellantis, and other leading global car manufacturers, as well as Bosch, Continental, and Kautex, have production bases for vehicles or components in Hungary.
Hungary is currently the third country, following Germany and China, to have three BMW Brilliance Automotive plants. The German automotive industry has invested over 7.86 billion euros in Hungary. Audi, in particular, has invested more than 11.5 billion euros in Hungary since entering the country in 1993 and has created four times as many jobs in Hungary as in Germany itself. To promote the growth of the domestic economy, the Hungarian government encourages German companies to invest and establish factories, as well as technical research and development centres in Hungary.
The most typical example is the Bosch Group, which not only decided to move its factory to Miskolc after Orban came to power, but also operates an R&D centre there and employs many highly qualified local engineers. In 2025, Bosch will invest an additional €480 million to further expand its electric drive development, testing and production capacity. This “first factories, then R&D” path is becoming increasingly smooth. According to the Hungarian Investment Promotion Agency, from 2010 to 2019, the expansion of German companies will increased the value of the Hungarian automotive industry by 165%, generating 2.5% of Hungary’s GDP. Of course, at the same time, the subsidies received by companies have naturally increased steadily, with German companies alone receiving 122 million euros in subsidies and support in 2019, 70% more than domestic Hungarian companies. At the same time, the number of German companies receiving more than 1 billion forints (2.64 millions euro) in subsidies from the Hungarian government far exceeds that of other countries.
Germany has invested in higher education in Hungary, with over 566 cooperation projects currently in progress between the two countries.
These include the Andrássy Gyula German-language University in Budapest, which is the only Germanlanguage university outside the German-speaking countries. Additionally, Germany’s renowned Fraunhofer Institute has established a project centre for management and information technology in Budapest, along with the EPIC InnoLabs joint venture with Hungary’s SZTAKI research institute. The revival of Hungary’s automotive industry has brought about economic recovery and social stability. The sector accounts for 20% of Hungarian exports and 8% of GDP.
It is undeniable that Orban’s government has executed this strategy masterfully, creating a “German-Hungarian” community of interests with subsidies and low tax models that have attracted significant global investment in the automotive industry, positioning Hungary as the “Detroit of Europe” and solidifying its status as an industrial power. Orban’s excellent leadership is inextricably linked to all these transformations, and is a key reason why Hungarian voters have repeatedly reelected Orban. This shows that public concern is focused on economic development.
Ⅲ. GLOBAL PERSPECTIVE OF HUNGARY’S BATTERY INDUSTRY POLICY
In the automotive industry, the challenge is to keep up with the times in the long term. Hungary’s strong promotion of the automotive industry and rapid development of the battery industry reflect a global vision.
The appearance of new electric vehicles in 2015 drew the attention of the Hungarian automotive industry and decision-makers. Hungary had relatively weak innovation capabilities, so even the slightest negligence could lead to the systemic risk of being left behind in the wave of technological innovation. If the market for fossil fuel vehicles shrinks and the market share of German car manufacturers decreases, Hungary will undoubtedly be the first to feel the effects. The long-term stagnation of former automotive powers such as the UK, France, Slovakia, and the Czech Republic serves as a stark lesson. Official estimates suggest that if Hungary’s car industry fails to adapt to the new situation, GDP could fall by as much as 10%.
Hungarian policymakers are also concerned that even if they keep up with the industry’s transformation and maintain their current share of the automotive market, the electric vehicle industry’s growth could significantly impact Hungarian society. The reason for this is that the demand for labour in the production of electric vehicles is significantly lower. For instance, the number of workers required to assemble electric vehicles is 40% less than that needed for internal combustion engine vehicles. This reduction in labour demand could put more pressure on employment in Hungary, potentially leading to waves of unemployment.
The Orbán government had to act promptly and strive for industrial breakthroughs in the new energy era, specifically in the battery industry. Between 2015 and 2016, the Hungarian government conducted extensive research, established the Battery Industry Alliance, and formulated the ‘National Battery Industry Strategy’ with the core goal of making Hungary the ‘centre of the European battery value chain’ and achieving carbon-neutrality targets to promote the development of a sustainable battery value chain.
Peter Kaderjak, the Executive Director of the Hungarian Battery Alliance and a former official of the Orbán government, stated that the new era of energy poses an existential challenge for Hungary and Europe. The core of this new industry is batteries, and Europe has fallen behind, missing the opportunity to create a complete value chain.
The European automotive industry, led by German companies, is lagging behind in the transformation. It is advisable to take the initiative instead of relying solely on German companies
In the face of significant internal and external challenges, the Hungarian government has taken the first step by resolutely implementing the policy of ‘opening up to the East’, specifically to the industrial chains represented by China, Japan, and South Korea in a gradual and progressive manner. This decision has two key points:
Hungary’s most pragmatic strategic choice is to “open up to the East”.
In 2010, when Orbán took office, he abandoned Hungary’s traditional strategy of relying on the West and instead proposed a ‘policy of opening up to the East’ (keleti nyitás politikája). However, until 2016, investors from East Asia seemed to be more interested in investing in Western Europe than in Central and Eastern European countries.
After some initial attempts, Hungary has realised that to attract investors from East Asia, it is not only necessary to manage bilateral government relations well, but also to have direct interaction with the industries. Therefore, since 2016, the Orbán government has actively pursued closer ties with the new energy industries in East Asia. This has involved reaching out to manufacturers of new energy vehicles and lobbying industry giants to invest in Hungary’s battery manufacturing industry.
After learning about the concerns of East Asian companies regarding investing in Europe, such as the adaptation of Hungarian workers to the overtime culture of East Asian companies, the Orbán government promptly made policy adjustments to address these issues. It amended the Labour Code and passed the Overtime Amendment through Parliament to meet the needs of East Asian companies. In order to facilitate local recruitment by East Asian companies in Hungary, the Orbán government has passed a series of laws that relax the previous employment restrictions. These laws now only require a minimum wage level to be paid.
In August 2016, Samsung SDI from South Korea invested €1.2 billion to establish a factory in Göd, Hungary. This investment was a milestone for Hungary and will help to better serve the needs of European customers. It laid the foundation for Hungary to become a key player in the European battery manufacturing industry.
If Audi’s investment in the 1990s helped Hungary recover from economic difficulties, Samsung’s investment can be seen as helping Hungary take advantage of the opportunities presented by the new energy era. During the foundation ceremony of Samsung SDI’s factory in 2017, Prime Minister Orbán stated that “Samsung’s investment brought the future to the city of Göd”.
In August 2016, Samsung SDI announced a €1.2 billion investment to build a factory in Göd, Hungary. This investment was a milestone for Hungary as it laid the foundation for the country to become the centre of the electric vehicle battery manufacturing industry in Europe.
As a result, South Korea became Hungary’s largest source of foreign direct investment in 2019, overtaking Germany. This has been referred to as a ‘bilateral trade miracle’. South Korea has remained Hungary’s top investor for the following three years.
While explaining the reasons for South Korea’s heavy investment in Hungary, South Korean Ambassador to Hungary Kyoo Sik Choe stated that in addition to Hungary’s superior geographical location and favourable investment policies, the country’s friendly attitude towards South Korean investors during the epidemic was also crucial. During Hungary’s travel restrictions, South Korean companies received special treatment, which allowed them to continue normal exchanges. In 2022, South Korea was the first country for which travel restrictions were lifted in Hungary. This was a decisive factor for South Korean investors.
The investment of Korean companies played a crucial role in Hungary’s transition before the epidemic. It is not an overstatement to say so.
In 2022, Hungary’s foreign direct investment reached a record high, with 73% invested in the battery manufacturing industry. Additionally, Hungary successfully diversified its partners this year, with 48% of investments coming from East Asia and 42% from EU countries and the US. Foreign Trade Minister Peter Szijjarto stated that this ratio is beneficial for the Hungarian economy.
The second point is that Chinese and other East Asian companies have an advantage in the renewable sector and a need to develop a global market. This has become a catalyst for the development of Hungary’s battery industry.
Since 2022, China’s battery industry has faced intense domestic competition, leading companies to expand overseas. While barriers to the North American market are increasing, Europe remains a natural high-end market to compete for. Chinese investors are also turning their attention to Central and Eastern Europe due to its high cost-effectiveness.
In this context, Debrecen, a small city of just 200,000 people in eastern Hungary, has inadvertently become a hotspot for Chinese battery companies. The reason for this is ultimately due to German companies. In 2020, BMW announced a €10 billion investment to construct an ultra-large electric vehicle plant in the northwestern economic zone of Debrecen. In 2022, BMW increased the investment amount to €20 billion.
BMW’s decision had a domino effect on the overall development of the battery industry: first, as BMW’s largest battery supplier, Contemporary Amperex Technology Limited (CATL) decided to set up in Hungary to be closer to customers, abandoning Serbia and Poland. CATL’s official announcement in August 2022 sparked enthusiasm among Chinese battery industry chain enterprises to expand overseas in Hungary. EVE Energy, Hangzhou Huasu Technology, Semcorp, Ningbo Zhenyu Technology, and Zhijianeng Automation have recently announced investments in Debrecen. The initial estimate of Chinese investment in the city is approximately 90 billion euros. Additionally, Sunwoda Electronic, Guoxuan Hi-Tech, and Huayou Cobalt have expressed interest in making industrial investments in other Hungarian cities.
Chinese battery companies have been investing heavily in recent years. In fact, the total investment promised by Chinese battery companies has already surpassed that of Korean companies in previous years, according to incomplete statistics.
This will also intensify the competition between Chinese and South Korean battery companies in the European market. A Korean media report predicts that South Korea will hold 64% of the European market share in 2022, making it the dominant player. However, a fundamental shift may occur in 2025 with the arrival of Chinese investment.
Currently, Hungary is attracting global investment with its open policy, particularly targeting Chinese global enterprises. It has become a popular destination for Chinese companies to expand overseas in Europe.
In the European competition between China and South Korea, Hungary is benefitting from its strategic position. Hungary has attracted five of the world’s top ten battery manufacturers and has become a global centre for lithium battery manufacturing. Hungary’s Minister for Economic Development, Márton Nagy, stated: With the increase in battery production, Hungary’s automotive industry can grow from around 20% of GDP to 30% in the medium term. Hungary is set to become the fourth largest battery producer in the world, following the United States, China, and Germany.
Benchmark Gigafactory, a third-party organization, has analysed data that predicts Hungary’s battery production capacity will increase sevenfold to 207GWh by the end of 2031. Hungary is expected to have 86% of its production capacity coming from Tier 1 battery manufacturers, which is more than any other country in Europe.
In the face of such huge investments, the Hungarian government has not been lying idle: in addition to providing subsidies of up to 15%, which is a high average, it has also increasingly invested in building infrastructure around the factories. For instance, CATL’s project in Debrecen prompted the Hungarian government to invest 1,210 billion forints (3.2 million euros) in constructing the Debrecen South Economic Zone.
The Hungarian government hopes that East Asian companies, like German companies, will not only establish production facilities in Hungary but also gradually transfer R&D activities to the country. The government offers ‘special treatment’ to East Asian companies, based on high expectations.
Currently, companies like Samsung have been steadily expanding in Hungary in recent years. However, their engineering teams are still mostly composed of Korean professionals. Nevertheless, Samsung has announced plans to hire thousands of local engineers in the near future, particularly chemical engineers. Hungary has also explored the potential for deeper and long-lasting collaboration with the Chinese industry through CATL’s R&D centre in Germany and cooperation with the Fraunhofer Institute in Germany.
Péter Kaderják, the managing director of the Hungarian Battery Alliance, believes that Hungary has a high chance of replicating its past success in rebuilding the automotive industry in the battery industry chain. He emphasizes the importance of ensuring the sustainability of the economic development of the electric vehicle industry in Hungary. Even though the main investors are foreign companies, it is still necessary to promote local added value to the highest possible level. The automotive industry provides a clear example. Following the collapse of the Soviet Union, the Hungarian car industry disappeared entirely and had to be reconstructed from the ground up. German companies arrived and initially introduced only low value-added processes, but over the course of 30 years, Hungary’s value-added in car manufacturing has increased by approximately 30 percentage points.
Marton Czirfusz, a researcher at the Periféria Policy and Research Center in Budapest, noted that battery production is a labour-intensive and low value-added industry. He argued that the development of the battery industry would not improve the automotive industry’s position in the value chain; on the contrary, it would move downstream. As a result, the automotive industry would become more and more ‘Foxconnised’ – with a high proportion of skilled jobs but low wages and flexible employment.
For Hungary, establishing research, innovation, and creative capacities is not an easy path to gain competitive advantages. The strategic report of the Hungarian Ministry of Innovation and Technology (ITM) highlights that due to the limited international cooperation, there is a significant gap between academic research and industrial R&D needs, as well as a low level of integration of foreign investment into the local ecosystem. As a result, Hungary will face greater challenges.
The main challenge is the shortage of technical talent and labour. Newly constructed factories often require the mobilisation of local temporary workers to maintain operations. For instance, at Samsung’s Göd factory, less than half of the workers are Hungarian citizens, and there are fewer than 100 local residents. CATL’s factory in Debrecen is facing a significant challenge – the local small town has a very low unemployment rate and only a few thousand people. Therefore, recruiting workers has become a crucial issue to consider.
Furthermore, Hungarian society still shows resistance towards a significant influx of foreign workers.
In May 2023, the Orbán government proposed a ‘guest worker bill’ that would have permitted investment companies to bring in foreign workers, technicians, and managers to construct and operate factories. However, due to opposition from domestic public opinion, it was withdrawn before coming into force on 1 November.
This will undoubtedly increase uncertainty for Chinese companies involved in investment, construction, and operation.
Despite facing many challenges, Hungary’s recent achievements in industrial progress are still remarkable. These accomplishments are a testament to Hungary’s dedication to industrial growth and development. Hungary has created industrial agglomeration effects in five areas: battery cells, vehicle plants, components, battery materials, and recycling.
In the rapidly changing European car market, Hungary not only seized the opportunity early on but also distinguished itself from other European countries by welcoming East Asian giants, thanks to its policy of opening up to the East.
The EV manufacturing ecosystem is becoming more comprehensive and is gradually evolving into a hub for European automakers and East Asian battery manufacturers. This may be the primary reason why BYD invested in Hungary – it can use Hungary as a foothold to enter Europe and leverage Hungary’s rapid development of the automotive industrial chain for global expansion.
At present, from the perspective of Chinese enterprises, Hungary has become an ideal entry point for them to enter and develop the European Market. As the Hungarian Ambassador to China, His Excellency Mr. Pesti Máté Imre, said, “We have the lowest corporate tax rates, a business-friendly environment, a highly cost-efficient and flexible workforce, a unique geographical location and one of the most competitive subsidy systems in the EU.
IV. COMPREHENSIVE ASSESSMENT OF THE
LOCALISATION PROCESS IN THE HUNGARIAN MARKET
The above analysis shows that Eastern Asian companies are expanding into the European market through Hungary. This is due to Hungary’s strategic geopolitical advantages. By comparing emerging markets over the past three years, it is clear that the driving forces behind each market’s growth are unique. The Indian market benefits from its demographic dividends, while Saudi Arabia relies on transformation strategies. Hungary and Mexico attribute their success to their strategic geopolitical advantages.
Moreover, gaining and losing such advantages is not determined by the nation itself alone. Mexico obtained benefits as a result of the escalated rivalry between China and the United States when Washington enforced the Inflation Reduction Act. Hungary gained an advantage because the European Union promoted ‘de-risking’ against China, which obliged Chinese industries to maintain a contingency plan for future exports to the European market.
Therefore, the risks and opportunities in such niches are clear. However, the “strategic geopolitical advantages” may weaken if US or EU decision-makers introduce more stringent policies or measures against Chinese companies or investors. In other words, Hungary aims to maintain its open policy towards the East and provide adequate political guarantees for Chinese investors. However, it is uncertain whether this low entry barrier can be sustained in the long run, given the current circumstances of intensified global geopolitical fluctuations and rapid changes in economic patterns. Therefore, a comprehensive assessment is necessary.
Furthermore, Chinese companies may currently have easy access to Europe through Hungary’s low entrance barrier. However, they will still face significant challenges in the future when dealing with the entire EU market and its consumer groups. It is important to note that developing in Hungary has proven to be a difficult task for Chinese companies, as they have learned through many hard lessons.
Some companies have overstated Hungary’s perceived “pro-China” stance, disregarding the complexity of the country’s overall policy ecosystem. In recent years, both the United States and the European Union have intensified their political scrutiny of Chinese overseas investment. Hungary’s favourable attitude towards Chinese enterprises has led to a misconception that Hungary is a “Chinese investment enclave” within the European Union. This oversimplifies the complex political ecosystem and may lead to false expectations.
It appears that pressure from the EU continues to affect Hungary in various ways, including through opposition parties, international non-governmental organizations, think tanks, and other means. The accumulation of these voices may eventually have an unfavorable impact on Chinese business investments in Hungary.
Additionally, Chinese companies often prioritize “economic logic” over “social logic” during the localization process. While their pragmatic approach has led to success in terms of contributing to the economy through job creation and tax revenue, it may not be sufficient in European societies, particularly in Hungary where traditional values hold significant importance. As they do not face serious unemployment problems, one more or less factory job does not make much difference to them.
Simply put, when faced with the large-scale entry of Chinese companies, opposed to Chinese companies’ expectations, many locals not only didn’t line up to welcome them, but also showed extremely strong distrust and even took to the streets in demonstrations, which was an unexpected result for the context of the Chinese optimism. Therefore, it is urgent to change the localization logic from a passive to a proactive and interactive approach.
Chinese enterprises often follow a “lone knight” model, neglecting the convergence of interests among different stakeholders. This can make them vulnerable to criticism. When expanding globally, Chinese companies should avoid their tendency to “fight alone” and “meet challenges with countermeasures”. In the current unfavourable public opinion environment, going alone may attract more attackers, leading to exhaustion of strength and energy.
In this situation, Chinese enterprises must not only unite internally but also adopt a comprehensive approach and involve all stakeholders to achieve localised convergence of interests, and deeply integrate cooperation partners, social organisations, professional institutions and local governments to create more room for survival in the ever-changing big environment.
To summarise, the process of localization in Hungary requires a richer perspective of enterprises, as well as the concerted efforts and joint development of Chinese enterprises.
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