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Brussels is investigating whether China provided unfair subsidies for a BYD electric car plant in Hungary, in a highly sensitive move to target the deepening economic ties between Beijing and Viktor Orbán.
The European Commission is in the preliminary stages of a foreign subsidy probe into the BYD plant, two people familiar with the matter told the Financial Times, in a step that will further raise trade tensions with Beijing.
If Brussels finds that the Chinese company has benefited from unfair state aid, it could force it to sell some assets, reduce capacity, repay the subsidy and potentially pay a fine for non-compliance.
Hungary’s premier Orbán, has long been at odds with Brussels, particularly over Russia and the war in Ukraine. In recent months, he has taken increasingly strident positions against the EU, emboldened by the election of his ideological ally Donald Trump in the US. Orbán is expected to veto increased military support to Ukraine at a summit of EU leaders in Brussels on Thursday.
Orbán, who hosted President Xi Jinping in Budapest last year, has succeeded in attracting a quarter of all Chinese investment flowing into Europe in recent years. The BYD investment in the southern Hungarian region of Szeged is expected to reach €4bn, and create as many as 10,000 jobs.
EU officials say the factory was built with Chinese labour and uses mainly imported parts including its batteries, creating little economic value for the bloc.
János Bóka, Hungary’s Europe minister, told the FT that Budapest had not been informed about the probe, but added: “It is not surprising — and it is generally known that any investment that takes place in Hungary appears on the Commission’s radar very quickly, and the Commission follows with redoubled attention every state aid decision that takes place in Hungary.”
He said Budapest was “calm”, as it vetted state aid carefully.
The Foreign Subsidies Regulation has been used a handful of times against Chinese companies since it was introduced in 2023. It can impose wide-ranging remedies if it finds companies received any form of direct or indirect contribution from non-EU governments, including grants, interest-free or low-interest loans, tax incentives state-funded R&D, and government contracts.
A spokesperson for the Commission declined to comment. A spokesperson for BYD did not immediately respond to a request for comment.
The Commission has already determined that BYD, along with other Chinese carmakers, received subsidies in a trade investigation last year that led to tariffs on imports.
EU member states have since said they want Chinese companies to build factories in the bloc. But the EU’s top trade official, Sabine Weyand, said last month that they must play by European rules, ensuring a “level playing field”.
“We are not interested in investments that are simple assembly operations without added value and without technology transfer,” Weyand said, adding that the Commission had “instruments to foster that”.
The earlier trade investigation, which determined BYD had received such help, imposed tariffs of 17 per cent.
The Tesla rival has ambitious plans to expand in Europe and other international markets after raising $5.6bn in a recent share sale in Hong Kong. In addition to Hungary, it also has plans for a plant in Turkey and a third location that has yet to be decided.
The Warren Buffett-backed group is also facing scrutiny from the Chinese government regarding its plans to expand its overseas manufacturing footprint. People familiar with the matter have told the FT that Beijing is delaying approval for BYD to build a plant in Mexico amid concerns that the smart car technology developed by the group could leak across the border to the US.
Other Chinese EV manufacturers are also interested in investing in Europe. Chery has invested in Spain and Geely is in talks with the Polish government. Several Chinese battery companies are also building factories in the EU, including CATL, which is building its largest European plant in eastern Hungary at a cost of more than €7bn.
Additional reporting by Barbara Moens in Brussels and Kana Inagaki in London
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