Chinese leader Xi Jinping will spend most of his five-day tour in Europe this week in two small countries in the continent’s eastern half, a region that Beijing has used as a foothold for its expanding economic ambitions in Europe.

Following a stop in Paris on Monday to kick off his first European trip in five years, Xi will travel to Hungary and Serbia, two nations with autocratic leaders that are seen as China-friendly and close to Russian President Vladimir Putin.

As mainstream European leaders have pursued more protectionist policies to limit Beijing’s and Moscow’s reach on the continent, the governments of nationalist conservative leaders Viktor Orban of Hungary and Aleksandar Vucic of Serbia have courted economic ties with China, inviting major investments in infrastructure, manufacturing, energy and technology.

As the first European Union country to participate in Xi’s signature Belt and Road Initiative, Hungary has straddled a middle ground with its membership in the EU and NATO and an unusual openness to diplomatic and trade relationships with eastern autocracies.

Tamas Matura, a China expert and associate professor at Corvinus University in Budapest, said Hungary’s hosting of major Chinese investments and production sites — and its agnosticism on doing business with countries with spotty democratic and human rights records — has opened a crucial door to China within the EU.

‘Last true friend’ in EU

“The Hungarian government is the last true friend of China in the whole EU,” Matura said. “It is very important now to the Chinese to settle down in a country that is within the boundaries of the EU … and is friendly to the Chinese political system.”

One of the major benefits to China of establishing bases within the EU is avoiding costly tariffs. The European Commission, the bloc’s executive arm, is considering raising duties on the import of Chinese electric vehicles from its current 10% to protect the European auto manufacturing market — a mainstay for Germany, the 27-member bloc’s largest economy.

Yet in December, Hungary announced that one of the world’s largest EV manufacturers, China’s BYD, would open its first European EV production factory in the south of the country — an inroad that could upend the competitiveness of the continent’s auto industry.

That shift is visible in Budapest, where one car dealership has begun scaling down its supply of European vehicles and introducing models produced by BYD.

Mark Schiller, the strategy and marketing director for the family-owned Schiller Auto Group, said he thought European carmakers were “already behind” China in transitioning to EV production. His company recently stopped selling cars made by German carmaker Opel and switched to BYD.

“This was a huge shift,” Schiller said.

Another investment

Hungarian state television Monday appeared to confirm earlier reports that Xi and Orban would travel to the southern city of Pecs to announce another EV manufacturing investment there involving China’s Great Wall Motor.

In a news conference later, Hungarian Foreign Minister Peter Szijjarto castigated journalists for reporting on the potential deal, saying that those who mention specific companies before agreements are finalized are “clearly acting against Hungary’s national interests.”

The report on Xi’s potential trip to Pecs was later removed from the state television’s website. Orban’s office didn’t respond to multiple requests for information on Xi’s schedule.

In Serbia, to Hungary’s south, China runs mines and factories across the Balkan country, while billions more in infrastructure loans have funded roads, bridges and new facilities.

Hungary and Serbia have an agreement with Beijing to modernize the railway between the countries’ capitals of Budapest and Belgrade, part of a Belt and Road plan to connect with the Chinese-controlled port of Piraeus in Greece as an entry point for Chinese goods to Central and Eastern Europe.

The bulk of the project, which after numerous delays is expected to be completed in 2026, is financed through loans from Chinese banks — the kind of capital that Hungary and Serbia have been eager to utilize.

According to the AidData research lab at the College of William & Mary in Virginia, Chinese lenders have issued loans worth more than $22 billion to nine countries in Central and Eastern Europe between 2000 and 2021.

Of that sum, $9.4 billion has gone to Hungary and $5.7 billion to Serbia, dwarfing the totals of other regional countries.

Vucic has said he is “honored” that Xi — whom he often describes as a “friend” — is visiting Tuesday. He said before the visit that Serbia would seek further Chinese investment, particularly in advanced technologies.

But economic analyst Mijat Lakicevic said he didn’t expect any major new investment deals, because “everything that Serbia does with China has already been agreed.”

Hungarian incentives

Hungary, too, has created a favorable investment environment for China, providing generous tax breaks, subsidies and infrastructural assistance to Chinese companies, as well as helping them navigate Hungarian bureaucracy.

“They get the red carpets rolled out and they get everything tailor-made by the government. And that is a huge advantage,” said Matura, the China analyst.

Near Debrecen, Hungary’s second-largest city, construction is underway of a nearly 550-acre (222-hectare), 7.3 billion-euro ($7.9 billion) EV battery plant, Hungary’s largest-ever foreign direct investment.

Orban’s government hopes the factory, run by Chinese battery giant CATL, will make the country a global hub of lithium-ion battery manufacturing in an era where governments are increasingly seeking to limit greenhouse gas emissions by switching to electric cars.

Such investments are coming at a time when Hungary’s sluggish economy has been further hindered by record-setting inflation and the freezing of billions in EU funding that has been withheld over Orban’s track record on democracy standards and the rule of law.

With EU money at a standstill, Matura said, China has been willing to fill in the gaps in Hungary’s budget.

EU funds have almost stopped flowing into the Hungarian economy, “so now there is a desperate need in Hungary to turn towards other alternatives, other sources of financial capital,” he said.

Orban has been open about why he has prioritized Chinese investment: his belief that Western economies are declining, and that China is on the rise.

During a recent speech at the CPAC Hungary conservative conference, Orban outlined a vision of a “global economy that will be organized according to the principle of mutual benefit, free of ideology.”