The Hungarian government has announced a major overhaul of environmental and corporate tax rules that is expected to have significant implications for companies from China operating in the country’s fast-growing electric vehicle (EV) industry.
Government unveils sweeping reforms affecting battery and electric vehicle sector
According to a Bloomberg analysis, the reforms could reshape an industry worth around EUR 17.5 billion, much of which expanded under the previous government through generous state incentives and a business-friendly regulatory environment.
Prime Minister Péter Magyar announced on Friday that Hungary will introduce what he described as the strictest environmental regulations in the European Union, while also increasing financial burdens on polluting companies and abolishing generous tax incentives previously offered to multinational corporations. The measures form part of a broader reform of Hungary’s corporate tax system.
Bloomberg noted that the changes are likely to have the greatest impact on Chinese manufacturers, many of which chose Hungary as their gateway to the European Union and established some of their largest European battery production facilities in the country, including BYD’s first EU manufacturing plant.
Environmental concerns become a political priority
The government’s tougher stance follows growing public concern over the environmental impact of battery manufacturing. According to Bloomberg, dissatisfaction with large-scale battery investments and fears over soil, air and water pollution contributed to Magyar’s landslide election victory in April, reflecting widespread criticism of what many saw as the previous administration’s lenient enforcement of environmental regulations.
Transport Minister Dávid Vitézy stressed that the new government would adopt a zero-tolerance approach to environmental violations. “There will be no compromises and no flexibility in enforcing these rules,” he said, adding that the government would not overlook environmental breaches in favour of Chinese industrial interests.
Battery manufacturers from China face increasing scrutiny
The policy shift is already becoming visible through regulatory action against several major investors from China. Last month, Hungarian authorities suspended the operations of Semcorp, a Chinese manufacturer of separator films used in lithium-ion batteries, after groundwater contamination was detected beneath its factory in the industrial park of Debrecen.
Semcorp operates next to CATL, which is currently constructing an EUR 7.2 billion battery plant—the largest single investment in Hungarian history. Authorities have also launched an investigation into CATL after green-coloured liquid was reportedly observed near the construction site in May.
At the same time, police opened an investigation into BYD over allegations that contaminated soil classified as hazardous waste had been illegally removed from its construction site in Szeged. A senior official at the Ministry of Environmental Protection described the alleged incident as a serious environmental violation. BYD has denied the accusations.
Former foreign minister joins BYD
The developments come as China’s leading car manufacturer, BYD appointed Péter Szijjártó, former Hungarian Foreign Minister, as its Director of External Relations. During his time in government, Szijjártó played a leading role in attracting electric vehicle investments to Hungary and coordinating state subsidies for major industrial projects. Bloomberg also reported that he is currently under investigation over his alleged ties to the Kremlin.
Investors from China reassess Hungary
According to Bloomberg, China’s business community has already begun to take note of Hungary’s tougher regulatory approach. One investment consultant reportedly cancelled a planned investment tour of Hungary after the mayor of Debrecen publicly called on polluting companies to leave the city.
Despite the stricter enforcement, Vitézy insisted that the government does not intend to weaken Hungary’s relationship with China. “Our goal is not to dismantle Hungarian-Chinese cooperation,” he said. “We want to maintain the partnership while ensuring that everyone complies fully with Hungarian and European regulations.”
Infrastructure cooperation continues
The government has pointed to the ongoing reconstruction of the Budapest–Belgrade railway as evidence that cooperation with companies from China remains intact. The project, led by a consortium headed by China Railway Engineering Corporation (CREC), is now installing railway signalling systems that comply with European standards. According to Vitézy, the Chinese contractor has been able to complete the work in roughly half the time that would typically be required by a European company.
Read also: Major tax shake-up in Hungary as PM Magyar targets multinationals, polluters and tax loopholes
Hungary remains attractive for automotive investment
Despite the tougher regulatory climate, the government believes Hungary’s appeal to international manufacturers extends beyond the incentives offered by previous administrations. Bloomberg noted that the country possesses one of Europe’s strongest automotive manufacturing ecosystems, with major production facilities operated by BMW, Mercedes-Benz, Volkswagen and Suzuki.
Earlier this week, Prime Minister Péter Magyar attended the inauguration of the expanded Mercedes-Benz plant in Kecskemét. Mercedes-Benz CEO Ola Källenius reportedly described the factory as a benchmark for the company’s European operations.
Vitézy concluded by highlighting the close integration of Hungary’s automotive supply chain, noting that a significant proportion of Chinese-made batteries produced in Hungary ultimately end up powering German-built vehicles.
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