Hungary’s new government is stepping up pressure on Chinese companies, reopening previously approved investment and funding agreements while tightening environmental regulations for factories, a shift that is beginning to disrupt plans by major Chinese manufacturers including BYD and CATL.
Prime Minister Peter Magyar, who took office in May, has made repairing relations with the European Union a central priority, marking a sharp departure from the strongly pro-China policies pursued by his predecessor, Viktor Orban. Magyar’s government has pledged to strengthen environmental and labour standards, improve transparency in state subsidies and re-examine investment projects previously agreed with China and other countries.
Chinese electric vehicle giant BYD is among the companies facing renewed scrutiny. The automaker has established its European headquarters in Hungary and is expected to begin operations this year at an electric vehicle plant in Szeged, in southern Hungary.
In late July, Hungary’s Ministry of Foreign Affairs disclosed that the previous government had secretly promised BYD substantial subsidies and had agreed to accept about 10,000 Chinese workers. The disclosure has raised questions over the terms under which the project was approved, as well as concerns about labour practices during construction.
New York-based China Labor Watch reported that some Chinese workers it interviewed alleged they had been required to work as many as 14 hours a day, seven days a week, with claims of unpaid overtime. The allegations have added another layer of scrutiny as Magyar’s government seeks to strengthen labour protections and transparency around major foreign investments.
A potential conflict-of-interest issue has also emerged. Former Foreign Minister Peter Szijjarto, a close ally of Orban who negotiated the terms of BYD’s investment in Hungary, resigned from parliament in July and joined the Chinese automaker in an executive role. His move could make him a subject of a government investigation into whether his previous role in negotiating the investment created a conflict of interest.
Environmental regulation may prove even more disruptive to Chinese companies operating in Hungary. Transport and Investment Minister David Vitezy said in August that preferential treatment, including streamlined permit procedures for battery plants that violate environmental rules, would be suspended.
Authorities had already revoked the operating permit of Semcorp, China’s largest battery separator manufacturer, in June after groundwater samples from its factory in Debrecen revealed aluminium concentrations far above legal limits.
Environmental concerns have also surrounded a new battery plant operated by CATL, prompting growing opposition among local residents. In August, the government fined the company over violations involving the storage of hazardous waste and other environmental regulations.
Budapest plans to establish a new agency as early as this month to monitor environmental compliance at battery factories. The agency is expected to have powers to conduct on-site inspections and order production to be suspended. Environment Minister Laszlo Gajdos has warned that factories failing to comply with regulations will be shut down.
The tougher approach also reflects Magyar’s political success in eastern Hungary, where Chinese companies have made substantial investments. During the April parliamentary election that brought his government to power, Magyar secured decisive victories in cities including Debrecen, once regarded as an Orban stronghold. Environmental protection had been a prominent campaign pledge, particularly among voters concerned about the rapid expansion of industrial projects.
Orban’s government had actively promoted Chinese investment as a source of economic growth. During a 2024 meeting in Budapest with Chinese President Xi Jinping, the two countries agreed to expand investment in the electric vehicle sector. Critics have accused the previous government of offering Chinese companies opaque subsidy arrangements and favourable regulatory treatment, particularly over environmental requirements.
The shift comes as Chinese automakers face a more difficult European market. The European Union imposed additional tariffs on Chinese-made electric vehicles in 2024, arguing that they were being sold at unfairly low prices and posed a threat to Europe’s automotive industry. Chinese manufacturers that chose Hungary as a manufacturing base within the EU are therefore having to adjust to a more demanding regulatory environment.
Yet Magyar’s government appears unlikely to sever Hungary’s economic relationship with Beijing. Hungarian economist Bernadett Szel said China would remain an important partner, but would no longer be treated as a privileged actor.
“China will remain a key partner, but no longer as a privileged actor; its role will most probably be defined by clearer political and regulatory boundaries,” she said.
Szel added that Magyar’s Tisza Party was seeking to reconnect Hungary with Western economic networks and value chains while diversifying its international economic relationships. The approach, she said, implied reducing Hungary’s “one-sided dependence on China” rather than provoking a direct confrontation with Beijing.
For Chinese companies, the change could mean that Hungary remains an important manufacturing base but under substantially tighter political, environmental and regulatory conditions. For Budapest, the challenge is to recalibrate its relationship with China without abandoning the investment that made the country one of Beijing’s most important industrial footholds in Europe.
