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The European Commission has launched a preliminary investigation into potential unfair subsidies from China for a BYD electric car plant in Hungary. This move is part of a delicate scrutiny of the growing economic ties between Beijing and Hungarian Prime Minister Viktor Orbán.
People familiar with the situation told the Financial Times that if it turns out BYD benefited from unfair state aid, the consequences could include selling off assets, reducing production capacity, repaying subsidies, and facing fines for non-compliance. Such an outcome would certainly heighten trade tensions between Europe and China.
Prime Minister Orbán, often at odds with Brussels—particularly over issues like the Russia-Ukraine conflict—has taken more assertive stances against the EU, bolstered by his ideological ally Donald Trump’s influence in the US. At an upcoming EU summit in Brussels, Orbán is likely to oppose increased military support for Ukraine.
Orbán, who welcomed President Xi Jinping to Budapest last year, has managed to channel a significant portion of Chinese investments into Europe, pulling in a quarter of those funds. The BYD factory in Hungary is poised to reach an investment of €4 billion, promising to generate up to 10,000 jobs.
However, EU officials point out that this factory uses Chinese labor and mainly imported parts, including batteries, offering little in terms of economic benefit to the region.
Hungary’s Europe Minister, János Bóka, said to the FT that they hadn’t been formally notified of the investigation. He commented that it’s common knowledge the Commission closely monitors investments in Hungary, ensuring all state aid decisions are under scrutiny. He also mentioned that Hungary remains calm, as they conduct thorough vetting of state aids.
Since its introduction in 2023, the Foreign Subsidies Regulation has been invoked several times against Chinese firms. This regulation can demand sweeping measures if a company accepts direct or indirect contributions from non-EU governments, such as grants, favorable loans, tax breaks, or government-contract awards.
While neither the Commission nor BYD provided immediate comments, previous findings already indicated subsidies granted to BYD and other Chinese automakers, leading to imposed tariffs on imports.
Although EU countries have expressed a desire for Chinese companies to establish facilities within the union, Sabine Weyand, the EU’s lead trade official, has emphasized the importance of adhering to European standards to maintain fair competition. She pointed out that the EU is not interested in mere assembly plants lacking added value and technology transfer.
Following an investigation last year that confirmed BYD had received such aid, tariffs of 17% were enforced. Now, the Tesla competitor, which recently secured $5.6 billion through a share sale in Hong Kong, is ambitiously expanding across Europe and globally. Besides its presence in Hungary, BYD has prospective plans for new facilities in Turkey and another unspecified location.
Back home, the Chinese government is scrutinizing BYD’s international expansion strategies. Insiders have revealed to the FT that Chinese authorities are hesitating to green-light a BYD plant in Mexico due to worries that its smart car technology might end up in the US.
Other Chinese electric vehicle manufacturers, like Chery and Geely, are also setting their sights on Europe, with investments in Spain and discussions with Poland, respectively. Several Chinese battery manufacturers are ramping up operations in Europe too, notably CATL, which is constructing its most significant European facility in eastern Hungary at a staggering cost of over €7 billion.
Contributions to this report come from Barbara Moens in Brussels and Kana Inagaki in London.
