BYD Plant in Hungary Under Scrutiny for Alleged Unlawful Subsidies

New tightening of the EU's protectionist scrutiny on its automotive industry. This time, it targets both Chinese electric cars and the Hungarian government, which is speculated to be a wake-up call to Budapest over its stance on the Russia-Ukraine war.

The European Commission is investigating whether the plant that Chinese car manufacturer BYD plans to build in Hungary has received subsidies from the Chinese government, according to the British newspaper 'Financial Times', citing two sources familiar with the matter.

The newspaper notes that this measure targets the "increasingly deep" economic ties between the government of Hungarian Prime Minister Viktor Orbán and China, as reported by Europa Press.

Thus, according to the newspaper, the European Commission is in the preliminary stages of an investigation into foreign subsidies at the BYD plant. This is expected to "further intensify trade tensions with Beijing."

Therefore, if Brussels discovers that the Chinese car manufacturer has benefited from "unfair" state aid, it could be forced to sell some of its assets, reduce its capacity, return the subsidy, and potentially pay a fine for non-compliance.

According to members of the EU's investigation committee, the factory was built using mainly Chinese labor and imported industrial components, generating little economic value for the single market.

The newspaper also recalls that Orbán welcomed President Xi Jinping in Budapest last year and has managed to attract a quarter of all Chinese investment that has arrived in Europe in recent years.

In this regard, it highlights that Hungary expects a BYD investment in the Szeged region, in the south of the country, of 4 billion euros, which could create up to 10,000 jobs.

EU officials stated that the factory was built with Chinese labor and primarily uses imported parts, including batteries, generating little economic value for the bloc.

The Hungarian minister for Europe told the 'Financial Times' that Hungary was not informed about the investigation. "It is not surprising, and it is well known, that any investment made in Hungary quickly appears on the Commission's radar, and the Commission follows every decision on state aid in Hungary with increased attention," he commented.

The European Commission determined last October that both BYD and other Chinese car manufacturers received subsidies, following a trade investigation that led to the imposition of tariffs on imports.

The European Commission's investigation determined that BYD had received such subsidies and imposed a 17% tariff on imports of its vehicles to Europe.

The investigation arises from the Foreign Subsidies Regulation, which came into force in 2023 and imposes sanctions with varying degrees of severity depending on the direct or indirect contribution of foreign governments to operations within the community borders.