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Agnes Szunomar, the head of the Institute of Global Studies at Budapest’s Corvinus University, said that creating production centres within the European Union would give China a strong base from which to launch its own high-quality EVs into Western markets.
“Chinese carmakers will definitely create competition for European carmakers,” she said. “Technologically they are at the same level, or on a better level, but in terms of price they are cheaper.”
Gerocs said that European carmakers were now struggling to make up for years of underinvestment in green technologies.
“Many of these German companies, they really made a lot of miscalculations about where to allocate their investment funds,” he said. “They were obviously sticking with these older combustion engines, diesel engines in particular, for too long. They hoped they could keep it in the market. And they under-invested in EV technology – and now it seems like they’re going to be paying a price for that.”
Growing dependency
Since its wrenching transition to a market economy in the wake of state socialism’s collapse across central and eastern Europe, Hungary’s successive governments have relentlessly pursued a development model built on bringing foreign capital into its low-wage manufacturing sector. For three decades now, this has meant its automotive industry, which has long been dominated by German carmakers keen to shift their production to Europe’s periphery, being drawn to Hungary by generous taxpayer-funded subsidies for foreign investment.
These policies only intensified following the 2010 election of Viktor Orban’s right-wing Fidesz party in the aftermath of the global financial crisis. The spread of economic turmoil across the EU also served as a stark reminder of the risks of relying solely on Western European capital to fund Hungary’s development. Soon after his election, Orban began to promote what he called his “Eastern Opening” policy, building on his predecessors’ outreach to Asia to bring in multinational corporations from Japan, South Korea and, now, China.
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Andrea Elteto, a senior research fellow at the Centre for Economic and Regional Studies’ Institute of World Economics, said that Orban’s government was spending hundreds of millions of euros in subsidies to attract foreign direct investment (FDI) into the automotive sector.
“The huge state aid and subsidies the Orban government gives to these companies – there is a kind of regional competition to attract those Chinese companies, and he offers so much help, state aid, taxpayers’ money that it seems like a very good offer,” she said.
The size of Budapest’s subsidies is substantial. To bring CATL’s battery plant to Debrecen, Orban promised the Chinese manufacturer some €800 million in tax incentives and infrastructure support – more than one-tenth of the total investment. And at 9 percent, Hungary’s corporate tax rate is the lowest across Europe. In return, Hungary hopes to surpass the US in electric battery production and rise to second place across the world – after China.
Moving up the chain
Gerocs said that the nationalist Orban’s embrace of foreign capital in targeted industries was part of a broader plan – so far unsuccessful – to pull the country further up the global value chain.
“They want to try to create a Hungarian industrial class, which is, you know, very minor,” he said. “It became almost extinct in the privatisation period in the 90s, within the broader framework of FDI dependency. So it’s a kind of maneuvering in various ways. And they’ve been very friendly and attracting FDI in certain industries, mostly in the tradable sector, so like export industries, car makers, electronics, major exporters.”
Years of French, German and Italian investment in Hungary’s automotive industry seem to have done little to advance this aim, Gerocs said. Instead, an assembly-line approach to what now seem like dangerously outdated technologies has left the country’s manufacturing base exposed in the face of a global transition towards electric vehicles.
“This is a huge issue for these countries,” he said. “If they don’t do something, if they have no strategy to adjust to this new situation and respond to these challenges which is clearly beyond their realm, then they’re going to have a shockwave sweeping through the industry and sweeping through these countries.”
But some are sceptical that building EV batteries will allow Hungary to climb up the value chain any more than building combustion engines did.
“One advantage could be the potential technological spillover effect but typically these companies are bringing assembly activity only – they’re not bringing research and development activity,” Szunomar said. “And it seems that the Chinese are choosing to follow in the footprints of the Germans and the French in this respect.”
Building walls
Panicked by what it describes as China’s “overcapacity problem” in which preferential state treatment of domestic Chinese companies has flooded the world market with products that Western economies simply can’t compete with on price, the European Commission has already launched an investigation into “distorting” electric vehicle subsidies. The probe could lead to the EU imposing steeper tariffs on Chinese green technology to protect its own industries.
“Chinese electric vehicle companies are penetrating the EU market,” Szunomar said. “The EU knows that and fears the consequences, which is why they are already working on certain barriers and limits that would keep them out.”
But these tariffs, if they come into effect, would not touch Chinese electric vehicles made within EU borders, Elteto said. In this way, Chinese automakers’ investment in Hungary would not only give them greater access to the European market but shelter them from any protectionist measures the EU might put in place.
“I think the EU has woken up a bit late and I don’t know if it realises the extent of the Chinese, let’s call it invasion, in an EU country,” she said. “Or there is another possibility – that it realises it but let it go because of the German carmakers’ interest in having batteries.”
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Gerocs said that European automakers’ dependence on Chinese batteries made it difficult for the bloc to present a united front against Chinese competitors.
“German companies have a very strong and direct exposure to that. They really rely on their Asian suppliers, battery suppliers in particular, and they are not able to come up with any viable alternatives as of now,” he said. “We see there is very fierce competition, both in the Chinese domestic market, and everyone’s so scared of this coming over here to Europe and what’s going to happen in the next couple of years. But at the same time, there is an interdependence. They still have to use this technology. They cannot just switch it off.”
The larger problem is Europe’s own stated commitment to an urgently needed reduction in carbon emissions in the face of the worsening climate crisis. Under the EU’s 2020 Green Deal, the bloc needs to phase out the sale of internal combustion engines in all new vehicles by 2035. Without continuing to benefit from Chinese-made EV batteries, Szunomar said, it is a target that Europe simply cannot reach.
“Meeting the climate targets is not possible without electric vehicles,” she said. “And electric vehicles are not running without batteries.”
Source link : https://www.france24.com/en/europe/20240509-china-clean-car-manufacturers-find-european-foothold-hungary-ev-orban-xi-jinping
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Publish date : 2024-05-09 07:00:00
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