Unlock the Editor’s Digest for free
As Viktor Orbán leaves, the richly appointed residence of the prime minister in Budapest, the outgoing Hungarian Prime Minister will leave behind more than a corrupt and polluted state. He will also fail to tackle a series of Chinese investments in electric vehicles, batteries and rail links, whose production has been criticized at home and abroad for low environmental and labor standards and undermining businesses in other EU countries.
Chinese greenfield investments can create jobs and local manufacturing and provide invaluable green technology as oil prices rise. But especially in the US and EU, some governments struggling to build a critical, advanced industrial mass and establish independence from a geopolitical rival view Chinese companies as barbarians within the gates. In the EU, an ever-expanding array of increasingly powerful instruments to control these incursions has so far proven ineffective.
Foreign direct investment is often seen as a good thing and as a better alternative to imports. American autoprotectionism in the 1970s and 1980s led to Japanese (and later European) “tariff jumps,” with their companies setting up production in the US and bringing cheaper, better cars to the American car market. But contrary to misplaced American concerns about Japan as a strategic competitor, handing over control to a genuine geopolitical rival like China is a real problem. Although Donald Trump sometimes muses about encouraging Chinese car production to the US, he has so far maintained the ban on Chinese car technology he inherited from Joe Biden. He now faces the challenge of Canada And Mexicoco-signatories of the USMCA trade agreement, welcoming Chinese foreign direct investment.
The dynamics of a central strategy undermined by the self-interest of the constituent powers is even more evident in the EU. Orbán’s enthusiasm for Chinese investment is almost matched by that of Pedro Sánchez, Spain’s relatively China-friendly prime minister. As Pálma Polyák from the Max Planck Institute in Cologne, who has researched the subject, says: “Europe’s internal divisions undermine its ability to respond strategically and secure an advantageous position in an emerging global green division of labor.”
All this leaves the President of the European Commission, Ursula von der Leyen, looking for effective instruments to build a geopolitical EU. Brussels has tried to reduce Europe’s dependence on China, so far without much success.
In 2024, the Commission attempted to control Chinese import penetration of the European EV market by imposing a series of carefully calibrated anti-subsidy duties. The tariffs were only agreed after a blood-curdling battle between member states, with Germany skeptical because of its own position in the Chinese market.
Noah Barkin of consultancy Rhodium Group says the strategy is widely regarded as a failure: “It took over a year, it was hugely divisive, it was not prohibitively expensive for Chinese automakers and there was retaliation from Beijing. Barkin says recent Chinese investments in the EU have been tempered by the realization that they can still export to Europe from elsewhere.
On the path from trade to investment, the Commission created the Regulation on Foreign Subsidies. This is, in theory, a very powerful tool that allows for invasive investigations into market-distorting government subsidies received by foreign companies operating in the EU. But after an initial series of investigations in 2024, including raids on Chinese security scanning company Nuctech, investigations have proceeded slowly and without dramatic findings. The Nuctech case lasted more than 18 months to proceed with a full investigation. In March 2025, the Commission opened its most high-profile case against Chinese car company BYD and its Hungarian investment, but no decisions had yet been made. One of the few FSR cases that has been completed involves an energy company from the United Arab Emirates, which ultimately made several quite modest adjustments to fulfil.
The latest set of tools to regulate foreign direct investment, the Industrial Accelerator Act, is even more invasive. But again the enthusiasm among some commissioners met with strong opposition from Member States.
It is an open question to what extent and how a trading bloc like the EU should try to build autonomy vis-à-vis China. It is clear that there is still no political will to do that. Von der Leyen’s “geopolitical Commission” remains an ambition rather than a reality.
[email protected]
