China’s Growing Presence in Hungary: Opportunity or Challenge?

Rain_Steam_and_Speed_the_Great_Western_Railway
J. M. W. Turner: Rain, Steam and Speed – The Great Western Railway // Public domain

“The Belt and Road Initiative (…) is designed to integrate more countries and regions into economic globalization and achieve shared prosperity through mutually beneficial cooperation.” – Xi Jinping, at the 14th Group of 20 (G20) Summit in Osaka, Japan, 28 June 2019.

Since the launch of the Belt and Road Initiative in 2013 by the Chinese leader Xi Jinping and the Eastern Opening by the Prime Minister of Hungary, Viktor Orbán, economic and diplomatic cooperation between China and Hungary has increased significantly.

While Sino-Hungarian relations have improved in recent years, the political and economic ties between Hungary and the EU have soured. Beijing and Budapest have emphasised that the projects implemented in Hungary under the Belt and Road Initiative are merely economic and mutually beneficial. Despite these claims, the lack of transparency and the politically infused nature of these investments and cooperation makes Hungary’s relationship with the EU difficult.

Eastern Opening Policy and Belt and Road Initiative

After the Fidesz Party came into power in 2010, the Hungarian government launched its Eastern Opening Policy in 2012 which aimed to reduce Hungary’s economic dependency on the West by improving Hungary’s economic relations with Russia and China. The Hungarian government has argued that Chinese investment in Hungary is a mutually beneficial economic cooperation. The government has long claimed that Chinese economic investment in Hungary has improved Sino-Hungarian relations and Hungary’s economic position in the CEE.

Hence, the Hungarian government has aimed to improve its economic ties with Russia and China in the last decade. This has meant the welcoming of major Chinese companies, for example, Huawei, and the implementation of major infrastructural projects, including the modernization of the Budapest-Belgrade Railway line.

One year after the launch of the Eastern Opening policy, the Chinese president, Xi Jinping, announced the launch of the Belt and Road Initiative (BRI). The BRI is an ambitious project which has focused on the development of infrastructure, energy, and trade projects across the world. According to the official narrative, five major objectives were established under the BRI: ‘policy coordination, infrastructure connectivity, unimpeded trade, financial integration, and connecting people’.

Under the umbrella of the initiative, many port, railway, road and airport projects were implemented. Since its launch in 2013, BRI projects were implemented in more than 60 countries. While many countries, mainly developing nations, have welcomed Chinese infrastructure projects under the initiative, the BRI has been viewed with suspicion and received criticism, especially from Western countries.

Many Western states have viewed Chinese investment in the Central Eastern European (CEE) region as China’s attempt to weaken the European Union’s economic and political unity. Examining the most significant Chinese investment projects in Hungary this article will draw the conclusion that the nature of improved Sino-Hungarian economic and political relations impacts Hungary-EU relations negatively.

The Belgrade-Budapest Railway Project

Since the Hungarian government announced the renovation of the Belgrade-Budapest railway line in 2015 it has become one of the most famous and biggest infrastructural projects in Hungary. The Budapest-Belgrade Railway project is part of a larger Chinese railway project that targets the renovation of the Piraeus-Budapest line and aims to connect the Greek Piraeus harbor to the Western European markets through Hungary. On the Hungarian side, the railway project means the construction of a 166 km long line, on which trains could transport people and goods with a maximum speed of 160 km/h.

Although, high-speed trains already operate in the Central Eastern European region, for example in Poland, this would be the first high-speed train in Hungary. The estimated cost of the project on the Hungarian side is approximately 1.38 billion euros which makes it the most expensive railway project in the history of Hungary. 85 per cent of the project is financed from loans provided by the government-owned Chinese Export-Import Bank, and the remaining 15 per cent of the finances are provided by the Hungarian government. Through the project, China aims to make the transportation of goods faster from the Chinese-owned Greek harbor to the Western European markets.

While this project means increased economic and political influence of the Chinese government, the project’s benefits for Hungary remain unclear. Mihály Varga, the Minister of Finance, has claimed that the project can make Hungary a logistical center in the region and can significantly improve the transportation of people and goods between Eastern and Western Europe.

Moreover, the Hungarian government stated that due to the increased transportation of goods on the railway line Hungary could benefit from the processing of custom duty of Chinese goods since the custom duty rate is lower in Hungary than in many other countries in the CEE region. According to European custom duty laws, Hungary would receive 20 per cent of the customs duty income from these Chinese goods.

While the Hungarian government officials have argued that this railway project will improve Hungary’s economic situation and position in the CEE region, estimates have shown that the project can take 240 to 2400 years to be beneficial. Besides, according to Hungarian economic and political observers, it is unlikely that China will use Hungary for custom duty as it would bring marginal economic benefits to Beijing. Hence, the economic benefits of the railway project remain unclear for the Hungarian side.

Besides the economic benefits, the Hungarian government has also argued that the renovation of the Belgrade-Budapest railway line will benefit the Hungarian citizens. However, the beneficiaries of the project can be questioned as one of the implementing consortium members is RM International which has connections to Lőrinc Mészáros.

The Hungarian billionaire is the childhood friend of Viktor Orbán and became a billionaire under unclear circumstances after the Fidesz gained power in 2010. Hence, his connection to the project’s implementation has raised the question of corruption involved in the construction of the railway. Moreover, since the renovated railway line will not go through major cities, not many Hungarian citizens will benefit from the renovation. Thus, these two factors make it unlikely that the Belgrade-Budapest railway project serves the interest of the Hungarian citizens.

The nature of the investment creates further untrust in the project between the European Union and Hungary as the reasons for the projects remain unclear and the Hungarian government made the details of the Belgrade Budapest railway project a secret for the next 15 years. The European Union fears that without the transparent regulations of the project China would have easier economic access to the European markets and could make Hungary economically dependent on China as has happened to Montenegro where the government could not pay back the Chinese loans on time and became economically dependent on China.

The lack of transparency in the implementation and the unclear benefits of the project on the Hungarian side have spurred criticism from the Western European countries as the investment could breach the unity of the EU’s economic and political approach towards China.

Fudan University Campus in Budapest

Despite the clear political motives in the Belgrade-Budapest railway project, the Hungarian government could argue that the railway project means long-term economic benefits for the Hungarian economy and citizens. However, the political dimension of Chinese investment becomes more visible in the construction of the Fudan University campus in Budapest.

China started to establish the Confucius Institutes across the world in 2004 which provide cultural and educational programs about China. Since these institutions are established by the Chinese Communist Party (CCP) and lack academic freedom, Western countries have become suspicious of these institutions arguing that the Institutions are the tools of Chinese soft power and promote the CCP’s ideology. Hence, many Western countries, including Denmark, Finland, and the United States, have closed their Confucius Institutes arguing that the Institutions pose a security threat to the country.

The Hungarian government has not only established six Confucius Institutes in major Hungarian cities, including Budapest, Szeged, Miskolc and Pécs, but it aims to open the doors of the first Chinese university campus in the European Union by 2024. The campus of the Fudan University, similarly to the Belgrade-Budapest railway project, will be implemented from Chinese loans estimated to be 500 billion Hungarian Forints (around 1.25 billion euros).

Moreover, the Hungarian government has allocated 800 million Hungarian Forints (2 million euros) for the project. The campus will provide more than 6000 spaces for students who want to study medicine, engineering, social sciences, and economics.

The Hungarian government has argued that the establishment of the campus will improve Hungarian academia as Fudan University is an acknowledged prestigious university. While Fudan University was listed 34th best globally on the QS World University Rankings in 2021, according to the AWRU ranking it took only 70th place and according to the British Times Higher Education (THE) ranking it was the 60th best university globally in the same year. This ranking difference arises as the Times Higher Education ranking system puts a greater emphasis on the quality of teaching and research at the examined universities than the QS World University Rankings.

Although Fudan University is among the top 100 universities globally, many European universities are before Fudan University. For example, LMU Munich in Germany was ranked 32nd best and KU Leuven located in Belgium was ranked 45th best on THE ranking. Hence, the government could have initiated academic cooperation with one of the prestigious universities within the EU to improve the quality of Hungarian higher education instead of inviting the Chinese university.

Establishing a research and study program with one of the European universities could not only improve Hungarian academia but could also improve Hungary’s political and diplomatic relations with the EU. Nonetheless, similarly to the establishments of Confucius Institutes, the academic partnership with Fudan University can raise suspicion in European member states and damage Hungary’s diplomatic and academic ties with the EU.

Besides, the construction of the campus has spurred criticism among the Hungarian opposition as the Chinese university has pledged to the CCP and has limited academic freedom. The lack of academic freedom and the freedom of thought in Fudan University goes against the values of the European academia which has these two values enshrined in its establishment.

European universities were granted academic freedom for around a thousand years with the first known document granting academic freedom dating back to 1088. Academic freedom means both the freedom of research and teaching in universities. Since Fudan University is controlled by the CCP and lacks academic freedom, it goes against the values of European universities and poses a security risk to the European Union. Thus, the establishment of the Fudan University campus in Budapest further damages Hungary’s relations with the EU.

Vaccine Diplomacy

The Covid-19 pandemic provided further ground for diplomatic cooperation between the two countries. China was quick to provide medical equipment to many European countries, including Hungary when the global pandemic started in 2020.

Moreover, Hungary was the first country in the EU to authorize the Sinopharm vaccine and order five million doses of the vaccine even though the European Medicines Agency (EMA) has not approved the vaccine due to security risks and the lack of transparency in the vaccine’s documentation. While the medical cooperation between China and Hungary have flourished, the nature of this partnership between the two countries has further damaged Hungary’s political and diplomatic ties with the EU.

China has expanded its soft power influence across the world by exporting medical supplies and vaccines. By providing medical support to other countries, Beijing has managed to positively influence other nations’ perceptions of China and helped the country to establish a leadership position in world politics. For instance, many leaders have embraced China’s medical support during the Covid-19 pandemic and China’s perception across the world has improved.

However, the medical cooperation between China and Hungary during the pandemic has resulted in damaged diplomatic ties between Budapest and Brussels. For example, Hungarian Prime Minister, Viktor Orbán, has strongly criticized the European Union for its response to the pandemic claiming, “help does not really come from here [EU]”.

Furthermore, he has praised China for its help and cooperation during the Covid-19 situation. The hostile attitude of the Hungarian government towards the EU and the import of the Sinopharm vaccine without the EMA’s authorization of the vaccine have undermined the Hungary-EU diplomatic and political ties.

How Should Hungary Manage Its Ties with China to Restore Hungary-EU Ties?

While the Sino-Hungarian economic and political ties have improved in the last decade, as shown above, Hungary’s relations with the EU have soured. The reason for the damaged EU-Hungary ties is not due to the improved economic and political cooperation between Beijing and Budapest but it is caused by the nature and the underlying features of the cooperation between the two countries.

One of the problems in Sino-Hungarian economic and political cooperation is the lack of transparency, which poses an economic threat to the European Union and enables corruption. Hence, improving the transparency of these investments and cooperation could re-establish trust between Hungary and the European Union. For example, in the case of the Belgrade-Budapest railway project, the financial details of the project were made a secret for 15 years and the costs of the projects remain unexplained.

Moreover, since the project is implemented by RM International, a company that has connections with the Prime Minister’s friend, Lőrinc Mészáros, many Western and opposition politicians have suspected corruption. To achieve improved relations with the European Union, the Hungarian government should make the details of the Belgrade-Budapest railway project and other Sino-Hungarian projects publicly available aligning with EU requirements, which would explain the cost of the project and show the absence of corruption.

Another feature of the Sino-Hungarian relations that damages Hungary-EU ties is the non-alignment with European standards. For example, the EMA has not approved the Sinopharm vaccine, setting a standard for most EU nations not to use the Chinese vaccine. Hungary has ignored this standard and has decided to import five million doses of Sinopharm.

Similarly, the Hungarian government disregarded the European academic standard and the long tradition of academic freedom in Europe when announcing the establishment of the Fudan University campus in Budapest. These actions have sparked the EU’s criticism and mistrust as Hungary has not aligned with European standards and values, despite being a member of the EU. Hence, Sino-Hungarian cooperation should align with the European standards to ensure Hungary’s integrity in the European Union.

Conclusion

Hungary’s Eastern Opening policy was launched in 2012, which has enhanced political and economic cooperation between China and Hungary. The improved economic and political ties between the two states have resulted in the Belgrade-Budapest railway project, the construction of the Fudan University campus in Budapest and medical cooperation during the Covid-19 pandemic. The Hungarian government has stated that the economic and political cooperation between Budapest and Beijing benefit the Hungarian economy, the Hungarian academia, and Hungarian citizens.

However, these benefits of the projects remain unclear. Moreover, the lack of transparency and the political nature of the projects undermine Hungary’s economic and political ties with the European Union. So, to re-establish trust between Hungary and the EU and to improve Hungary-EU economic and political ties, Sino-Hungarian cooperation should introduce transparency, align with the EU economic and political standards, and Hungary’s hostile attitude towards the EU should be changed.


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Aliz Fendrik
Republikon Institute