Chinese Investments in Hungary: Growth Written in the Books and the Stars

Three trillion Hungarian forints: that’s the revenue of the local battery manufacturing ecosystem hit in 2023, according to the Hungarian Battery Association. This is up 50% year-on-year and is equivalent to 4% of Hungary’s exports. The sector has been catapulted up to the second-largest manufacturing segment.

Hungary has enormous expectations for the battery industry, which is expected to help growth rebound to the 3-4% range this year. And Chinese stakeholders will assume a crucial role in the process. In 2023 alone, three related mega projects were announced by EVE Power, Sunwoda and Huayou Cobalt. Needless to say, battery-focused endeavors go hand-in-hand with EV-related projects, and remarkable activity was also detected on that front.

The crown jewel of Hipa’s project catalog in that department is the BYD deal. The Chinese behemoth, which became the leading manufacturer of both plug-in hybrid and electric-only vehicles in 2023, will invest billions of euros in setting up its first European EV plant in Szeged (175 km south of Budapest by road).

Hungary is no uncharted territory for BYD. It already operates an electric bus factory and a battery assembly plant and manufactures electronics parts in Komárom, Fót and Páty, respectively. Nevertheless, the newly announced investment takes the country’s strategic importance to a new level.

“The idea is to replicate the success of Hungarian automotive so that an equally thriving ecosystem is created in the EV segment from suppliers to research and development,” Hipa CEO István Joó says.

Chinese companies are doing their part to make it happen. Just to name two recent projects, Evoring Kft., a Shuanghuan Driveline company, will invest EUR 104.4 million to make shafts and gear for EVs, while PEX Automotive’s new plant, worth EUR 15 mln will make EV parts, among other things.

Anniversary Celebrations

The Hungarian Government’s Eastern Opening policy fuels the above-mentioned investor activity. Relations between the two countries have never been closer than this year, which marks the 75th anniversary of the establishment of diplomatic relations. Last year, two high-level diplomatic encounters occurred (one in each country), and Hipa’s top management consulted with several critical would-be investors in China earlier this year.

As Joó highlights, an attractive business environment, the strength of the automotive ecosystem and the dedicated support of the Hungarian Government and Hipa boost the country’s reputation with Eastern stakeholders as an excellent investment location.

That mutual trust resulted in EUR 8.5 billion in investment volume, 33 projects and the creation of well over 13,000 jobs by Chinese investors in the past five years alone, a total that does not include the above-mentioned mega projects.

China not only became the largest national investor last year for the second time after 2020, but it also broke the record for the biggest capital pledge (EUR 7.6 bln) a country has made in Hungary in any given year to date. This volume represented nearly two-thirds of the 2023 total; overall, China ranks eighth in terms of its share of the total FDI stock. The country is Hungary’s ninth most important trade partner, accounting for 4% of the total foreign trade volume.

Hungary received the second most capital investments in the CEE region under the One Belt, One Road Initiative, which aims to expand China’s global economic footprint.

“The trust that Chinese investors place in our economy is unbroken, and no change is in sight in that regard,” the Hipa CEO notes. “We continue our business talks about potential new projects, and the prospect of such eventual partnerships drove Hipa to meet with several automotive stakeholders in China in January, which went very well.”

BorsodChem Leads the Way

There are more than 400 Chinese companies in Hungary that employ around 20,000 staff, the largest of which is by far BorsodChem, with revenues of nearly HUF 1.2 trillion. It is now owned by Wanhua Chemical Group, a leading global supplier of innovative chemical products.

With Hipa’s support, it has been conducting its most intensive investment period since 2019. The development program, which amounts to close to EUR 1 bln, focuses on production capacity increases, upstream integration, and securing utility supply and industrial infrastructure.

“In 2023, these projects reached an important milestone when a new industrial site and new production plants with cutting-edge safety technology, environmental protection and the best available technical standards were handed over and put in operation,” a company statement shared with Hipa explains.

“As a result of these investments, the company expanded its headcount through the past five years by more than 300 people, reaching a total employment of 3,200,” the statement adds.

Celebrating the 75th anniversary of its operations, BorsodChem plays a pivotal role in the group’s corporate strategy as it will “become the most competitive polyurethane manufacturing base in Europe.” It “serves as Wanhua’s operational headquarters on the continent, encompassing investments, logistics and financing functions.”

BorsodChem’s example showcases that Chinese investor commitment is not restricted to the automotive sector and that a Hungarian presence can be prioritized in global operations. All signs point in the same direction as far as general Chinese investor sentiment is concerned.

On top of that, the Year of the Wood Dragon began on Feb. 10. In Chinese tradition, it symbolizes power, nobility, honor, luck, and success. According to one Chinese horoscope website, it “marks the beginning of a new 12-year cycle, which will bring opportunities for growth and change.” Hence, 2024 is forecast to bring lots of opportunities, as told by experts and, apparently, the stars alike.

This article was first published in the Budapest Business Journal print issue of March 22, 2024.