A Chinese Match Made in Heaven

Analysis

Minister of Foreign Affairs and Trade Péter Szijjártó (third from left) shakes hands with CATL representatives in September 2022 when the massive greenfield project was formally launched by signing the purchase agreement for the factory’s plot.

A growing number of Chinese businesses are choosing Hungary as the location of their investments. In particular, e-mobility seems to have caught the imagination of China-based investors, since the country presents an ideal meeting point for Western automakers and Eastern suppliers.

As indicated by the data of the Hungarian Investment Promotion Agency, and given the ever-closer relations between the two countries, the investment pipeline looks set to remain solid and further vitalize economic ties.

Just a few weeks after the announcement of a EUR 15 million investment, China-based NIO launched production at its first overseas plant in Hungary last September. The company promises to set new global standards in e-mobility and user experience by pioneering its Power Swap Technology. The fully automated solution swaps depleted batteries for charged ones without the user needing to leave their car, a convenient and speedy way to fight EV users’ range anxiety.

The Hungarian operation is a crucial part of NIO’s European expansion, since it will serve as the manufacturing, service and R&D center of its power products on the continent. As the company puts in a statement, “with this game-changing technology, NIO can help Hungary to strengthen its leading role in the European EV industry.”

Indeed, Hungary has been going full steam ahead to secure strategic positions on the way to net zero. Chinese investments have been providing a catalyst to this effort and Hungarian economic growth. Just to name but a few examples from the recent past, PEX Automotive, Chervon Auto, and Zhejiang Huashuo Technology have all decided to set up sites to manufacture EV parts on a mass scale. Semcorp’s EUR 183 mln project in Debrecen paves the way to turn the city into a significant manufacturing hub of separator film, a key component of lithium-ion batteries.

Chinese investment intensity in Hungary has been a steady feature in recent years. The Asian giant, combined with Hong Kong, is the eighth largest investor in the country, accounting for nearly EUR 4 billion in investment volume, according the latest available data of the Hungarian Central Statistical Office (KSH).

Including Hong Kong, China’s share of Hungary’s total FDI stock is 3.9%. The past five years alone have witnessed up to 28 HIPA-guided deals worth nearly EUR 1.2 bln, creating around 3,000 new jobs. That data doesn’t include leading global battery manufacturer CATL’s record investment of EUR 7.3 bln, which, although announced in 2022, will count towards the 2023 statistics with construction starting this year.

EU Record-breaker

Given its sheer volume, the CATL deal deserves particular attention. It is not only the most significant greenfield investment yet to be carried out in the country, but also a record-breaking battery manufacturing investment at the EU level. Having already built a plant in Germany, CATL chose Hungary for its second European site, where it plans to create thousands of jobs.

“As Europe steps up its ambition to combat climate change, the Hungarian plant, CATL’s largest overseas plant, dovetails nicely with the EU’s ambition and also marks a milestone in CATL’s global journey,” the company says in a press statement.

Building a gigafactory in Debrecen is a logical step due to its close proximity to many automotive enterprises, which will enable CATL to better meet the demands of its European partners and the market. In fact, Mercedes-Benz was named as a primary buyer of future batteries made in Debrecen at the time of the announcement.

Hungary has been working on attracting Asian investments for more than a decade. The so-called “Opening to the East” policy back in 2010 envisaged intensified relations with Eastern countries.

“FDI statistics reflect the success of this approach: up to 60% and 48% of the total investment volume was attributed to Asian investors in 2021 and 2022, respectively, as evidenced by our data,” HIPA CEO István Joó highlights. “China became the largest investor in 2020 for the first time, and thanks to the CATL project, it will most likely finish first in 2023 again.”

Excellent foreign relations between the two countries fuel such positive developments to a large extent. The level of mutual respect and trust were praised during the visit of China’s highest-ranked diplomat, State Councilor Wang Yi, in mid-February. It was also agreed that cooperation with China has been essential for Hungary to emerge from every crisis stronger than before. According to KSH data, China is Hungary’s third most important trade partner. Bilateral trade value was up by 5.9% in 2022, year-on-year.

China is expanding its global footprint. The Belt and Road Initiative and the Digital Silk Road program both aim to improve connectivity and cooperation among multiple countries spread across different continents in a wide range of sectors. This activity, and Hungary’s pro-China stance, seem to be a match made in heaven, with Hungary now designated as the primary investment location in the CEE region for Chinese businesses.

E-mobilty Accelerator

CATL’s decision to set up shop here is part of this pattern. The project is seen as accelerating the transition to e-mobility in Hungary and Europe, generating substantial tax revenues for the host country and becoming a new driver for the local economy. The expectation is that it will help attract both upstream and downstream partners across the EV value chain to Hungary, thus injecting vitality into the country’s sustainable development.

On-site sustainability will be taken to the next level too. In Debrecen, CATL plans to replicate its Southwest Chinese Yibin plant, the world’s first zero-carbon certified battery factory, which has achieved carbon neutrality through the use of green electricity, intelligent energy management and electrification of transportation.

CATL has also created the Big Data-based “Credit,” the first audit toolkit in the industry to calculate indices about the sustainability performance of enterprises across the supply chain, thus helping them explore their paths towards sustainability.

Chinese firms that are settled in Hungary are here to stay, and the investment pipeline looks similarly promising. As Minister of Foreign Affairs and Trade Péter Szijjártó recently announced, negotiations are ongoing with four Chinese corporations as a result of which several new projects of considerable value could enter the bloodstream of the Hungarian economy in the near future.

This article was first published in the Budapest Business Journal print issue of March 10, 2023.

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