China-Hungary Bilateral Relations: Trade and Investment Outlook

China and Hungary have recently elevated their bilateral relationship to an “all-weather” comprehensive strategic partnership, reflecting deep political trust and extensive cooperation across various sectors. Notably, Hungary was the first European country to join the Belt and Road Initiative (BRI), a global development strategy initiated by China to enhance regional connectivity and foster economic cooperation across Asia, Europe, and Africa. In this article, we discuss the dynamic and evolving nature of China-Hungary relations, marked by mutual support and collaborative growth.

The relationship between China and Hungary dates to October 1949, during the first week of the formation of the People’s Republic of China. Over the years, this bilateral relationship has fostered significant exchanges in energy and infrastructure. Diplomatic ties between the two nations remain strong, characterized by regular high-level visits and dialogues. Both countries actively support each other’s core interests and cooperate within multilateral frameworks, including the United Nations and the China-Central and Eastern European Countries (China-CEEC) cooperation mechanism.

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As a member of the 17+1 cooperation framework, Hungary plays a pivotal role in facilitating economic ties between China and Central and Eastern European countries. Hungary was the first European country to sign the BRI cooperation document with China, which aligned with Budapest’s “Eastern Opening” strategy. This enhanced bilateral practical cooperation in trade, investment, finance, and other areas. In fact, Hungary is the third-largest trade partner of China in the Central and Eastern European area, while China remains Hungary’s largest trade partner outside the European Union. In 2023, bilateral trade volume surged to US$14.52 billion, marking a remarkable 73 percent increase since 2013.

In May 2024, Chinese President Xi Jinping visited Hungary, where he announced the formation of an “all-weather partnership” aimed at ushering in a new era of economic cooperation. This strategic partnership signifies an elevated level of bilateral relations, with both countries agreeing to expand cooperation across various sectors, including the nuclear industry.

A major highlight of their cooperation is China’s financing of a high-speed rail project connecting the capitals of Hungary (Budapest) and Serbia (Belgrade).

Furthermore, the China (Xi’an) – Hungary Economic and Trade Cooperation Exchange Meeting, held in Budapest in June 2024, reflects Hungary’s eagerness for increased Chinese investment in sectors like modern agriculture, food processing, machinery manufacturing, geothermal and photovoltaic energy, and tourism.

China-Hungary bilateral trade

China and Hungary have maintained robust bilateral trade cooperation, overcoming challenges and achieving substantial growth over the years. According to the China Economic Information Service (CEIS), bilateral trade between the two countries reached US$14.52 billion in 2023, representing a 73 percent increase compared to 2013.

The focus of this trade relationship lies in high-value-added machinery, electrical equipment, and advanced technology products. Specifically, the following categories of items account for over 80 percent of the bilateral trade volume: electric motors, electrical equipment and components; boilers, machinery and parts; vehicles and parts; and optical, photographic, and medical equipment and components.

According to the latest available data, the top five exports from Hungary to China in 2022 were:

In the same year, China’s leading exports to Hungary were:

China’s investments in Hungary

China’s direct investment in Hungary stood at US$8.12 billion in 2023, constituting 58 percent of Hungary’s total foreign direct investment. Since 2020, China has been the largest source of foreign investment in Hungary.

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Chinese companies, led by China Railway Engineering Corporation (CREC), are heavily investing in the construction of a high-speed railway between Belgrade and Budapest, as stated earlier. This project is a significant component of China and Central and Eastern Europe’s cooperation under the BRI. Both Chinese President Xi Jinping and Hungarian Prime Minister Viktor Orbán have highlighted that the BRI aligns closely with Hungary’s strategy of opening up to the East.

Additionally, as a critical node in the European automotive industry and supply chain, Hungary—with its unique geographical location and comprehensive industrial system—becomes an ideal place for Chinese companies to establish roots. Its geographical position and convenient transportation network not only provide a highly competitive business environment for enterprises but also strategically positions it to meet the demands of the European market.

Regarding power battery projects, China is Hungary’s second-largest investment partner after South Korea. Industry giants, such as CATL (Contemporary Amperex Technology Co., Ltd.), BYD, EVE Energy, and XINWANDA, have successively chosen to establish production bases in Hungary. Among them, CATL’s battery factory in Debrecen represents the largest investment project in Hungary’s history.

This cooperative situation holds positive implications for the development strategies of both countries’ battery industries. As Chinese power battery companies establish a strong presence in Hungary, the country will become a key production base, further integrating China’s battery industry into the global market.

Moreover, despite European Union countries’ increasing tariffs on Chinese EVs, Hungary is strengthening its cooperation with China. The two countries are expected to sign over 18 new cooperation agreements, covering a range of sectors from automotive to nuclear energy.

Bilateral investment and double tax treaties

Bilateral Investment Treaty (BIT)

Signed in 1991, the China-Hungary BIT protects and promotes investments between the two countries by outlining the rights and obligations of investors. It ensures fair and equitable treatment, protection from expropriation, and provides mechanisms for resolving investment disputes. This stable environment encourages investments from both sides.

Double Taxation Avoidance Agreement (DTA)

The China-Hungary DTA, signed in June 1992, aims to avoid double taxation on income earned by residents of one country in the other. Covering business profits, dividends, interest, royalties, and capital gains, the DTA prevents double taxation by allowing tax credits and exemptions. Income earned by Chinese enterprises in Hungary is taxed in Hungary, with tax credits available in China, and vice versa.

Key provisions and impact:

• Reduced withholding taxes: The DTA reduces withholding tax rates on dividends, interest, and royalties, encouraging cross-border investment by lowering the tax burden.
• Permanent establishment: The DTA defines when a business or commercial undertaking becomes a permanent establishment, clarifying tax obligations for businesses operating in the other country.
• Tax credits and exemptions: The DTA allows tax credits or exemptions to avoid double taxation, fostering a favorable investment climate.
• Exchange of information: The DTA enhances transparency and prevents tax evasion through the exchange of tax information between authorities.

The withholding tax rates are outlined as follows:

• Dividends: 10 percent
• Interest: 10 percent
• Royalties: 10 percent

These agreements provide legal certainty and reduce tax burdens, promoting bilateral trade and investment. They reflect strong economic ties and benefit businesses from both countries.

Conclusion

The all-weather partnership between China and Hungary is a testament to the long-standing and multifaceted relationship between the two nations. With healthy trade figures and significant investments, particularly in infrastructure and high-tech industries, the bilateral relations between China and Hungary are set to grow even stronger. Strategic cooperation under the BRI highlights the mutual benefits and shared aspirations of China and Hungary as they chart development paths for their respective economies.

Although Hungary is robustly developing its own electric battery sector, it is likely to serve more as a partner for Chinese battery manufacturers in Europe rather than a competitor in the short term. While Hungary has an advantage in terms of lithium mining resources, China’s technological expertise and industrial strength remain significantly ahead. This advantage is difficult to surpass any time soon.

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