Historical Background

The Hungarian People’s Republic and the People’s Republic of China (PRC) were both established in 1949, on 20 August and 1 October, respectively. With both countries in the communist camp, Hungary formally recognised the PRC as China’s legitimate government as early as 4 October 1949.

In the 1950s, bilateral relations began to develop through a significant number of high-level visits, which led to deepening economic, political, and cultural ties. Although the relationship was within the Soviet sphere of interest, Hungarian foreign policy differed somewhat from that of Moscow. While the Soviet Union maintained colder relations with China as they disagreed on ideological issues such as how to evaluate the legacy of Stalin and the direction of the International Communist Movement, Budapest continued to cooperate closely with Beijing. Whether the Chinese Government supported or opposed the Soviet invasion of Hungary in 1956 remains controversial to this day. By the end of the 1950s, however, the Sino-Soviet split had greatly limited how far Central and Eastern European (CEE) countries within the Soviet orbit could go in improving their relations with China, and deep ideological differences began to emerge between Budapest and Beijing. As a result, in the 1960s, especially during the Chinese Cultural Revolution, the relationship cooled. Still, Hungary tried to maintain a connection with Beijing, motivated mainly by the pursuit of trade benefits.

As the Chinese Communist Party embarked on its policies of Reform and Opening Up in the late 1970s, the two countries were brought closer together again. The Chinese leadership was genuinely interested in the Hungarian economic reforms of 1968—an experiment that created the so-called New Economic Mechanism, which flexibly combined the existing large-scale socialist sector with small-scale private activities—so a series of expert delegations from China visited Hungary to study the experience. In the 1980s, state and interparty relations were normalised and high-level delegations began travelling back and forth once again.

After the democratic transition of 1989 in Hungary, the level of contact between the two countries declined again, primarily because of the reorientation of Hungarian foreign policy, with more attention given to Euro-Atlantic interests. For more than a decade, bilateral exchanges were minimal, but relations remained free of tensions, if not cordial.

A new, fruitful period began at the turn of the millennium, after then Hungarian Prime Minister Péter Medgyessy (in power from 2002 to 2004) visited Beijing in 2003. The new rapprochement was initiated by Hungary, as the government in Budapest recognised that China was becoming an increasingly important player in the global economy and international politics. In the meantime, European Union (EU) membership made Hungary more attractive to China as well.

The Hungarian Government made several confidence-building gestures to strengthen its relationship with China, including the creation of a new special envoy position for the development of bilateral relations with the PRC. The first results of the new policy were the arrival of a branch of the Bank of China in Hungary (in 2003), the creation of the Bilingual Chinese–Hungarian Primary School in Budapest (2004), and the initiation of direct commercial flights between Budapest and Beijing (2004). Cultural contacts deepened as well: the first Confucius Institute was established in Budapest in 2006, and four more were opened in various Hungarian cities (Szeged, Miskolc, Pécs, and Debrecen) in the following years.

Although the first government of Viktor Orbán (1998–2002) neglected relations with China, the second, third, and fourth (2010–present) dedicated particular attention to boosting relations with Beijing. Prime Minister Orbán has repeatedly emphasised the importance of looking East. In his words, although Hungary’s ‘ship is sailing in Western waters, the wind blows from the East’.

In fact, the Hungarian Government regularly promotes bilateral relations with the PRC and supports it on many sensitive issues. In 2016, Hungary (and Greece) prevented the European Union (EU) from backing a court ruling against China’s expansive territorial claims in the South China Sea. At the end of 2019, in the middle of the controversy around Huawei’s alleged corporate espionage, as other Western governments were banning the company from involvement in their network infrastructure, the Hungarian Government announced that Huawei would build a 5G network in Hungary. Also, after the COVID-19 outbreak in 2020, Hungary was one of the most vocal countries in Europe in praising Chinese support in supplying medical equipment (testing kits and medical masks) to Europe, as well as the first EU country to approve the Chinese Sinopharm vaccine to speed up its vaccination efforts. In May 2021, Hungary blocked an EU statement accusing Beijing of cracking down on democracy in Hong Kong.

BRI Status

Hungary was the first European country to sign a memorandum of understanding with China on promoting the Silk Road Economic Belt and Maritime Silk Road, during Chinese Foreign Minister Wang Yi’s visit to Budapest in June 2015. Prime Minister Orbán said many times that he was convinced Hungary could be an important pillar of the Belt and Road Initiative (BRI) and that that the country was ‘proud of being part of the renewal of international relations that is embodied in the One Belt, One Road initiative’. In 2018, Hungary’s ambassador to the European Union was alone in not signing a report criticising China’s BRI for benefiting Chinese companies and Chinese interests.

Infrastructure projects—financed by Chinese loans and now branded as BRI projects—have been under negotiation for a while, but the Budapest–Belgrade railway seems to be the only one that will be implemented soon. The Hungarian Government was very keen on the railway project and when the construction agreement was signed in 2014, Prime Minister Orbán called it the most important moment in the cooperation between the European Union and China. However, the project’s construction is supported by a loan of 1.855 billion USD, the details of which remain murky and the benefits of which for the Hungarian side have been questioned by experts. So far, it seems Chinese engineers will be responsible for carrying out planning, land surveying, and preparatory work, with Chinese contractors and subcontractors involved in the construction work. The CRE Consortium, which is responsible for the design and construction of the railway, comprises three companies: two were founded for this purpose in Hungary by two Chinese state-owned enterprises—both subsidiaries of the China Railway Group Limited (CREC)—while the other is the holding company Opus Global, which is controlled by an associate of Prime Minister Orbán.

Current Economic Relations

Trade: From the early 2000s onward, coinciding with the accession of CEE countries to the European Union, bilateral trade between Hungary and China increased relatively fast, starting from a very low base. When China created the 16+1 initiative in 2012, trade volumes increased throughout the region, including in Hungary, although this growth was not balanced: while imports from China increased substantially, the growth of exports to China remained rather modest, and even decreased slightly after 2014 and 2017. Consequently, trade deficits increased rapidly, with the level of Chinese imports currently around four times that of exports. The main products imported from China are the same as those of most other European countries—that is, machinery and electronics. Hungary exports to China vehicles, machinery, and electronics, mainly generated by multinational companies located in Hungary and not by local Hungarian companies. Although China’s hunger for high-quality agricultural products is growing globally, the share of agriculture in Hungary’s exports is not significant, and in 2020 it remained below 3%.

Investment: When it comes to foreign direct investment (FDI), according to statistics from the Hungarian National Bank, in 2018 Hungary hosted Chinese FDI stock valued at around 2.2 billion USD. According to more recent data from 2021, the stock now exceeds 3.4 billion USD. Either way, Hungary is a major recipient of Chinese companies’ investment in the CEE region. Still, although it has grown significantly over the past decade, China’s economic impact on Hungary remains relatively small: Chinese investment is still dwarfed, for example, by investment from Germany, which accounts for more than 20% of total inward FDI stock. Overall, Chinese FDI stocks are around 2.5% of total inward FDI in Hungary, compared with the more than 70% of (Western) European investors. Among non-European investors, companies from the United States, Japan, South Korea, and even India have invested more in Hungary than those from China. The main Chinese investors targeting Hungary are primarily interested in telecommunications, electronics, the chemical industry, and transportation. Initially, Chinese investment flowed mostly into manufacturing (assembly), but over time, services have attracted more investment. In addition to Wanhua Chemical Group, a partially state-owned company and the largest Chinese investor in Hungary, major companies active in Hungary include Huawei (telecom), ZTE Corporation (telecom), Lenovo (computers and electronics), and BYD (automobiles). These last firms are technically privately owned or controlled, although some (such as ZTE and Huawei) have also received substantial support from the Chinese state.

Finance: In addition to trade volume and FDI, financial cooperation between China and Hungary is also worth noting. This field of cooperation is in its infancy, but it is rapidly growing. The Bank of China (BoC) has established a regional and CEE headquarters in Budapest, while the Industrial Commercial Bank of China (ICBC) is looking into the possibility of doing the same. In 2017, Hungary was the first sovereign issuer to successfully sell Chinese yuan-denominated bonds (dim sum and Panda bonds) both on the onshore market and in Hong Kong. Hungary also joined the China-initiated Asian Infrastructure Investment Bank (AIIB) in 2017.

When it comes to Chinese loans, Hungary took a significant loan from the Export–Import Bank of China (Eximbank) to cover 85% of the total cost of the Budapest–Belgrade railway, which hovers around 2 billion EUR, making it the single most expensive rail investment ever in Hungary. In addition, the Hungarian Government recently announced its plans to build a Budapest campus of the Chinese Fudan University with Chinese contractors, financed by a 1.25 billion EUR loan from China.

Key Controversies in Bilateral Relations

One of the most significant and most controversial characteristics of the relationship between China and Hungary is the strong political commitment from the Hungarian side. Examples include police measures taken against pro-Tibetan and anti-China protesters during Wen Jiabao’s visit to Budapest in 2011; Radio Klasszik, which had been partly bought by China Radio International, being forced to change its programming during the same visit; and Prime Minister Orbán laying a wreath at the Monument to the People’s Heroes in Tiananmen Square during his 2017 visit to Beijing.

As detailed above, the minor benefits deriving from China’s economic engagements in Hungary (that is, an export market and a modest amount of FDI) are not currently proportionate to the enthusiasm of the Hungarian Government for further building relations with China. Other countries in the region, such as Poland and the Czech Republic, have already become disappointed or even suspicious about engaging with China, but Hungary continues to insist on the importance of the relationship.

Prime Minister Orbán wants strong partners outside the European Union, which he believes is in decline. He explained this at a conference in 2017, saying that ‘Brussels became addicted to a utopia … that is called a supranational Europe’ while in fact there still are independent nations in Europe, with their own politics, intentions, and will. He added that to be successful, Europe needs new types of cooperation, which includes treating China with respect. Hungary, in his view, is a frontrunner in this regard, since the country is ‘of Eastern origin into whom Christianity has been grafted, that allows a special angle, so as we understand everything that is happening in China’.

This belief could be seen, for instance, in the Hungarian Government’s decision at the end of 2019 to allow Huawei to build its 5G network, despite rising national security concerns across Europe. The recent loan-based projects (Budapest–Belgrade railway, Fudan campus) have also been widely criticised as expensive, with critics doubting whether the country even needs these projects.

Key Sources

English-Language Media Outlets:

• Budapest Business Journal
• Direkt36
• Telex

Scholarly Publications and In-Depth Reports:

Karásková, Ivana, Alicja Bachulska, Ágnes Szunomár, and Stefan Vladisavljev’ (eds). 2020. Empty Shell No More: China’s Growing Footprint in Central and Eastern Europe. Policy Paper. Prague: Association for International Affairs. Link.

Matura, Tamás. 2018. ‘Hungary and China Relations.’ In China’s Relations with Central and Eastern Europe, edited by Weiqing Song. Abingdon, UK: Routledge, 137–53.

Matura, Tamás. 2018. ‘The Belt and Road Initiative Depicted in Hungary and Slovakia.’ Journal of Contemporary East Asia Studies 7(2): 174–89.

Matura, Tamás. 2021. ‘Chinese Investment in Central and Eastern Europe: A Reality Check.’ Central and Eastern European Center for Asian Studies website. Link.

Rogers, Samuel. 2019. ‘China, Hungary, and the Belgrade–Budapest Railway Upgrade: New Politically-Induced Dimensions of FDI and the Trajectory of Hungarian Economic Development.’ Journal of East–West Business 25(1): 84–106.

Szunomár, Ágnes. 2020. ‘Home and Host Country Determinants of Chinese Multinational Enterprises’ Investments into East Central Europe.’ In Emerging-Market Multinational Enterprises in East Central Europe, edited by Ágnes Szunomar. Cham, Switzerland: Palgrave Macmillan, 51–86.

Szunomár, Ágnes and Tamás Peragovics. 2019. ‘Hungary: An Assessment of Chinese–Hungarian Economic Relations.’ In Comparative Analysis of the Approach Towards China: V4 + and One Belt One Road, edited by Zack Kramer. Institute of World Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences, Prague Security Studies Institute, Institute of Asian Studies (IAS), Belgrade Fund for Political Excellence (BFPE), and Centre for International Relations (CIR). Link.

Cover Photo: Budapest. Credit (CC): ChHsia.