EU probes Hungarian subsidies to BYD under new foreign subsidies rules

The European Commission (EC) has launched an inquiry into state support provided by Hungary to Chinese electric vehicle (EV) manufacturer BYD, as part of a broader investigation into foreign subsidies distorting competition in the EU.

The preliminary probe, initiated on 19 March 2025, comes under the EU’s Foreign Subsidies Regulation, which empowers the EC to scrutinise non-EU state aid that could influence acquisitions, mergers or large-scale public procurement tenders within the bloc. Corrective actions under the regulation could include blocking the investment, the repayment of subsidies, or fines.

The EC confirmed that it had sent formal requests for information to the Hungarian government concerning support granted to BYD. The Chinese firm, the world’s largest EV producer, plans to construct a factory in Szeged, south Hungary. The investigation seeks to determine whether Hungarian subsidies to BYD undermine fair competition in the EU single market.

Expansion of enforcement powers

The move highlights growing EU scrutiny of Chinese industrial influence in Europe, particularly in strategic sectors such as green mobility and clean technologies.

The EC initiated an investigation into Chinese EV manufacturers in the autumn of 2023, focusing on the impact of China’s subsidies on pricing and market access in the EU.

An EC spokesperson said the Foreign Subsidies Regulation ensures that non-EU subsidies do not lead to unfair advantages within the internal market. Although the regulation has existed since July 2023, this is among its first major enforcements.

UK daily the Financial Times reported, citing unnamed insider sources, that “This could result in the Chinese company having to sell assets, reduce capacity, repay subsidies or pay fines if the EU’s probe concludes that it received distortive support”, i.e. subsidies that unfairly tilt market competition.

Hungary’s close ties with China

Hungarian Prime Minister Viktor Orban has deepened economic and political ties with China, and BYD’s planned facility in Szeged, expected to create thousands of jobs, is part of a broader effort to position Hungary as a hub for Chinese investment in Central and Eastern Europe (CEE).

Hungary was the first European country to sign a Belt and Road cooperation agreement with China, in 2015. “Hungary is one of the most China-friendly countries in the EU,” Electrek recently observed, noting that it has welcomed Chinese investments even as other member states grow more cautious.

The Hungarian government has not yet publicly commented on the EC’s request, but has previously proclaimed BYD’s arrival as a coup for its “Eastern Opening” policy. The Szeged plant is expected to begin operations in 2026 and would be BYD’s first car factory in Europe.

Potential implications

Should the EC determine that Hungary’s subsidies violate the Foreign Subsidies Regulation, it could impose corrective measures, including blocking the investment or demanding reimbursement. The regulation attempts to align foreign companies’ operations with EU state-aid rules, ensuring a level playing field.

The EU’s attention to BYD signals a broader concern over the strategic dependencies that may arise from allowing Chinese firms to expand unimpeded in key sectors. As Brussels aims to strengthen its economic security framework, Hungary’s openness to Beijing-backed enterprises may increasingly come under the spotlight.

According to ArenaEV, “the scrutiny casts a long shadow over BYD’s broader European expansion plans”, adding that Hungary’s reputation as a Chinese investment hub “may be at risk if the EU takes strong corrective actions”.

The outcome of the probe would create a precedent for future scrutiny of Chinese investments in the EU, particularly those facilitated by member states pursuing bilateral arrangements outside the Brussels consensus.