Serbia and Hungary are Xi’s Trojan horses in Europe

“Xi in Serbia” doesn’t quite have the ring of “Nixon in China”, and unlike the Nixon visit, it won’t have an opera based on it. But the Chinese leader’s visit to Belgrade this week is a sign of the times.

Some analysts say President Xi Jinping’s visit reflects his limitations in Europe. However, the week-long trip is not about limits – it’s about expansion.

On Wednesday, Xi and his Serbian counterpart, Aleksandar Vučić, signed an agreement to “build a new era of a community with a shared future between China and Serbia”. “Shared future” is Xi’s signature foreign policy phase. One interpretation is that it means interdependency for the good of humanity.  An alternative is that it’s a series of regional Chinese hubs with individual countries as the spokes connecting to the centre. Serbia is one such spoke. China wants to keep it that way.

In 2016, they signed a comprehensive strategic partnership, followed up with a free trade agreement last year, and are now strengthening the relationship. This sits uncomfortably with Serbia’s application to join the EU, but suits Beijing which is pulling a willing Serbia away from that path.

Xi got the full red carpet treatment in Belgrade. The entire route from the airport to the capital was lined with Chinese flags. Thousands of people chanting “China-Serbia” were bused in to attend the welcoming ceremony at which Vučić called Xi an “ironclad” friend.

On the route into town was a giant billboard for the Chinese manufacturer Hisense which last year opened a factory in Serbia. Chinese companies run Serbian copper mines, steel mills and factories, they build roads and have just delivered the country’s first high-speed electric trains. These will run on a modernized rail line being funded by China which is expected to be completed in 2026. It’s part of Beijing’s Belt and Road strategy and will run between Budapest and Belgrade and link all the way south to the Greek port of Piraeus in Greece which is partially controlled by the Chinese company COSCO.

Xi and Vučić timed the visit to perfection. He arrived on the 25^th anniversary of the US airstrike which hit China’s embassy in Belgrade killing three Chinese journalists. This was during NATO’s war with Yugoslavia to push its troops out of Kosovo. NATO remains unpopular in Serbia, so this week was an opportunity for both sides to remind people why. Vučić took the trouble to agree with Xi in the view that Taiwan is a breakaway province of China, just as Beijing considers Kosovo a breakaway province of Serbia. The closer Serbia and China are, the further away Serbia is from EU and NATO membership.

Xi’s final stop? Nextdoor in Budapest. Hungarian Prime Minister, Viktor Orbán, signed his country up for the Belt and Road Initiative in 2015 and has been building on it ever since. China has invested billions of Euros already and there’s more to come. As well as the line to Belgrade, China wants to construct a railway line to connect Hungary’s Liszt International Airport with the capital. However, the most important plans surround electric vehicles (EVs) and EV batteries.

Orban wants Hungary to be the centre of European EV and EV battery production, Xi wants Chinese cars built inside the EU to circumvent potential tariffs on cars imported from China. Last year, China’s BYD sold more electric cars than Tesla and at significantly lower prices. This year, it broke ground for a factory in Hungary. Next year, it hopes to start production. Another Chinese company, CATL, is building an EV battery plant in Hungary and intends to supply batteries to Mercedes and BMW both of which have factories in the country. China wants to drive into the heart of the EU and take on the continent’s car industry.

Having friends in Budapest may also help on the political and economic front. Last month, Hungary’s foreign minister was in Beijing. His opposite number suggested that Hungary should use its influence in the EU to take a “friendly view” of Chinese trade inside the bloc. He was told that Budapest indeed opposes “decoupling” from China. In July, Budapest takes over the rotating presidency of the European Union Council.

However, while it may partially control the Council’s agenda, Hungary will struggle to reverse the trend within the EU to, at the least, “de-risk” from the Chinese economy and to impose economic sanctions if China continues to flood the bloc with cheap subsidised products, including electric cars. In the last 10 months, the European Commission has launched four investigations into Chinese companies suspected of receiving state subsidies to undercut EU rivals. Last month, EU commercial regulators raided the offices of the Chinese security equipment company Nuctech in Poland and the Netherlands.

Before travelling to Serbia, Xi was in Paris to see President Macron who showered him with gifts, including a Tour de France cycling jersey but didn’t tell him to get on his bike. Despite seeing his cuddling up to Putin turn into a punch-up in Ukraine, Macron still seems to believe that playing nicely with dictators gets results. His goal was to reduce the trade imbalance between the EU (especially France), reduce the state subsidies for Chinese exporters, and increase access for European companies. He got nowhere.

Xi responded that he would welcome high-level talks about all this, but was bereft of a date when they might take place. Nevertheless, he pre-empted the outcome of such talks by denying there was a Chinese “overcapacity problem”. Last year, the 27 EU countries ran a trade deficit of 292 billion euros with China.

Countries, and blocs such as the EU, cannot fully “decouple” from China, it’s too late for that. But the last few years have persuaded most democratic states that they must de-risk their supply lines and dependence on Beijing. Even Macron understands this.

Hungary and Serbia are democracies, but flirt with authoritarianism and authoritarians such as Xi. He knows their joint enterprise for the railway line ends in Greece, and he knows his Greek legends. Serbia and Hungary are his Trojan horses – with Chinese characteristics.

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