Cash-strapped Hungary expects economic support from Xi Jinping’s visit

Szabolcs Panyi (VSquare) 2024-04-29
Szabolcs Panyi (VSquare) 2024-04-29

This story is partly based on VSquare’s Goulash newsletter, updated with new information – read the full issue here with fresh scoops and a round-up of our latest investigations from Central Europe.

Chinese President Xi Jinping visits Hungary between May 8-10, the Hungarian government confirmed after weeks of speculation. Xi will arrive in the Central European country after official visits to France and Serbia. 

Before the official confirmation, citing a Hungarian source familiar with the security preparations, I reported in our Goulash newsletter that the Hungarian security agency in charge of protecting Hungarian and foreign dignitaries is preparing for a visit from a high-level delegation of around 400 Chinese in Budapest between May 8-10. The Hungarian agency is invoking the highest security protocol, the same level as was put into use during Pope Francis’s visit to Hungary last year. “This will be painful for the city,” the source added, meaning that such strict security measures will result in the Hungarian capital shutting down. 

Moreover, the restrictions on traffic will be actually more severe than during the pope’s visit. For example, the Hungarian security agency even wants to shut down the Budapest Castle Hill funicular – popular among tourists – which runs just next to the offices of the Hungarian president and Prime Minister Viktor Orbán. Since the funicular’s shutdown is planned to happen on May 9, there’s speculation that this could be the day Xi Jinping will meet with Orbán and the Hungarian president in their respective offices. “May 9 is Europe Day, moreover, this is the 20th anniversary of Hungary’s accession to the European Union. Meeting the Chinese leader on Europe Day carries a strange symbolic message,” an EU country’s ambassador to Hungary told me.

Given all this is set to happen a month before Hungary’s local and municipal elections, as well as the European Parliament elections, it’s not hard to imagine that the visit – and the annoyance of shutting down Budapest’s traffic – will feature in political debates this campaign season.

According to a report from Radio Free Europe’s Hungarian edition, Xi Jinping and Viktor Orbán might also visit the southern Hungarian city of Pécs to officially announce a new electric vehicle plant by the Chinese car manufacturer, Great Wall Motors. This new investment had already been reported by multiple Hungarian local outlets; however, as I previously disclosed, the Hungarian government ordered these sites to remove the prematurely published articles to avoid embarrassing the Chinese counterparts.

Two more Belt and Road projects

On April 24, Hungary’s Foreign Minister Péter Szijjártó met with his Chinese counterpart, Wang Yi, in Beijing to prepare for President Xi’s forthcoming visit to Hungary. Following three hours of negotiations, Szijjártó announced a new project under China’s Belt and Road Initiative (BRI): the construction of an oil pipeline between Hungary and Serbia. Moreover, he also announced new BRI railway projects, although details of these projects remain undisclosed. The Hungarian railway news website IHO.hu was the first to suggest that the projects might include the so-called V0 railway line and a high-speed railway connection between Budapest Airport and the capital.

A source with ties to the Hungarian government and insight into the negotiations confirmed to VSquare and Telex.hu that these railway projects are indeed part of the new Belt and Road initiatives – meaning Chinese loan financing, technology, and contractors. The source also provided additional information.

Among the new railway projects, the planned Budapest Airport high-speed rail connection presents challenges; it would operate independently from the existing Hungarian rail network, managed by the Hungarian State Railways, necessitating a separate fare for passengers, according to IHO.hu. “This would not be a public transport service, but a luxury train operating on a separate track,” said my government-connected source. The plans include service from Budapest Airport to the Nyugati Railway Station and to a proposed “mini-Dubai” district in an underdeveloped area of Budapest known as Rákosrendező. The government has previously announced plans to connect this district, awarded to an Emirati property developer, to the airport via high-speed rail. (These details were initially disclosed in a prior edition of our Goulash newsletter.)

That the airport’s high-speed rail link should be on a separate track and not on the normal Hungarian railway network is a condition of the Chinese, my Hungarian government-connected source said: “It’s crucial for them as it would serve as an EU reference in technology.” This strategic positioning would help China leverage this project to secure additional EU infrastructure projects and markets.

The other initiative, the V0, is envisioned as an east-west railway bypassing Budapest from the south. The plan is to route most freight trains on the new V0 outside the city limits, while passenger trains could utilize the existing rail infrastructure through Budapest. Without specifying the project, Péter Szijjártó alluded to it following his Beijing meeting with Wang Yi: “This opens the possibility for rapid and efficient modernization and expansion of Hungary’s rail network with external funding, which is especially vital at a time when investments are increasing, factories are being constructed, and production is escalating.” 

This project aims to enhance the energy security of the region under more favorable financing conditions, and with greater speed and efficiency.

In this context, he emphasized the significance of cooperation between China and Central Europe. He highlighted that numerous Chinese infrastructure investments have already contributed to the region’s development. A prime example is the renovation of the Budapest-Belgrade railway line, which is currently 42 percent complete in Hungary. The project incorporates technological advancements from Hungary, China, and Europe.

Hungary desperately seeks Chinese financial assistance

The V0 railway, in planning for decades, was announced to be financed by Russia during a meeting between Vladimir Putin and Viktor Orbán in early February 2022. However, the outbreak of war disrupted these plans. Subsequently, the loss of Russian funding put the project on hold due to Hungary’s strained budget and economic conditions. The Hungarian government-connected source familiar with the situation explained that, having effectively given up on unblocking EU funds, the Hungarian state is financially depleted, leaving a Chinese loan as the only viable option. 

According to an adviser collaborating with some of Hungary’s foreign creditors, discussions with EU Commission officials suggest that it is unlikely the Orbán government will meet the necessary criteria to unlock the remainder of Hungary’s frozen cohesion funds. Only the recovery funds are expected to be accessible. Simultaneously, an ambassador from an EU country to Hungary told me that the Orbán government routinely threatens the EU Commission with increasing reliance on Chinese financing if the cohesion funds are not released. 

The value of the projects currently under discussion with the Chinese has not been publicly disclosed; however, comments by Hungarian government members suggest it amounts to hundreds of billions of forints, which equates to hundreds of millions, or potentially close to a billion euros. My source, who is connected to the Hungarian government, claims that the cost will likely reach several billion euros—typically, 80-90 percent of which will be financed by Chinese loans, as is common with Belt and Road Initiative infrastructure projects.

Currently, Hungary remains the sole EU nation participating in China’s Belt and Road Initiative following Italy’s withdrawal last year. The ongoing Budapest-Belgrade railway project, however, is also encountering significant financial hurdles on the Hungarian side. A former high-ranking official from the Orbán government disclosed that Hungary’s budget is so depleted that, despite an agreement with China stipulating that the Hungarian state covers 15 percent of the project costs, there is scarcely sufficient funding available. This financial strain has slowed the project’s progress. Additionally, the project has been marred by a contentious dispute over whether to utilize Chinese or Western technology for installing the railway’s signaling equipment and automatic train control system, as previously reported in various issues of our Goulash newsletter here and here

According to my source with ties to the Hungarian government, serious challenges with EU regulators are anticipated for the two additional Belt and Road Initiative railway projects. These issues stem from the expected use of Chinese technology that is not compatible with EU standards.

Security pact under increased scrutiny

But there is another issue putting the Orbán government on a collision course with its Western allies. Recently, Hungary’s new security agreement with China, which permits Chinese police to patrol within the country, has already triggered significant backlash both domestically and internationally. Although the agreement is defended with the justification that it merely aims to assist the large number of Chinese tourists in the country, critics argue that it serves as a means for the Communist party-state to police its new investments and the Chinese nationals working on them.

However, those who are most at risk are Chinese dissidents living in the European Union. Now, a group of “freedom-loving EU citizens and Hong Kongers” are calling for immediate action from NATO and EU leaders to “end transnational policing operated by China in every country where EU citizens can move freely and in the Schengen area.” Organizers of the online petition are aiming to gather 2,000 signatures and already have 1,790. The main concern, according to the Freedom HK blog, is that Chinese policemen “can freely enter and leave Hungary, they can even go to European countries to perform secret missions and arbitrarily arrest dissidents.” 

The petition is specifically addressed to NATO and EU officials because the petition writers believe that Chinese policing is not only a “blatant threat not only to the freedoms of Hungarian people and visitors to Hungary, but also to the sovereignty and security of all countries of the EU and NATO.” Exact details of the Hungarian-Chinese agreement, including the future rights of Chinese policemen on EU soil, are unclear, and it’s hard to tell if this is because the Orbán government tries to hide these details – or if the agreement they signed is so vague that even they don’t know how it will be implemented.

Subscribe to “Goulash”, our newsletter with original scoops and the best investigative journalism from Central Europe, written by Szabolcs Panyi. Get it in your inbox every second Thursday!

By filling in the data and subscribing to the Newsletter, you consent to the sending of the “Goulash Newsletter” to the e-mail address provided. The data provided in the form will not be used for any other purpose.

Szabolcs Panyi

VSquare’s Budapest-based lead investigative editor in charge of Central European investigations, Szabolcs Panyi is also a Hungarian investigative journalist at Direkt36. He covers national security, foreign policy, and Russian and Chinese influence. He was a European Press Prize finalist in 2018 and 2021.