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Hungary - Europe's Terminus for the Belt & Road?

HKGCC "The Bulletin"

Hungary's efforts to woo China investors seeking a hub for their European ventures are reaping dividends, and things are expected to get rosier as both parties are laying solid foundations to capitalize on the Belt & Road's potential.

Hungarian Minister of Foreign Affairs and Trade Peter Szijjarto has no disillusionment about Hungary's relationship with Mainland China and Hong Kong in President Xi Jinping's Belt & Road plan. "We are the two end points of the modern Silk Road," he told The Bulletin during his visit to Hong Kong in December. "Hong Kong is the Eastern end and we are the Western one. That gives us an opportunity to enhance our cooperation."

Many of the Mainland's leading companies, from Huawei to BYD, have chosen Hungary for their European headquarters. Attracted by its low corporate tax rate of 9%, as well as high labour productivity, Mainland companies have invested US$3.7 billion in Hungary since it started actively pursuing Chinese investment in 2013 under the "Eastern opening policy."

"We understand that as Chinese companies are becoming more and more successful in Europe, they want to have a firm European footprint. We would like to stop this investment flow of capital from East to West in Hungary," he said.

Hungary has come under fire from other members of the European Union about the rapidly growing number of Chinese investors heading to the country, but Szijjarto dismissed such concerns and staunchly defended the government's political line.

"It is a competition. Big countries usually worry when we deal with China and when Central European countries deal with China. We are all competing for investment so it is just a competition, but we are winning," he said. "Until they go out and actively look for business like we are doing, and until they put more emphasis on doing business with China we will continue to win."

He sees Hong Kong as having an important role to play in the flow of trade and investment from East to West, but realizes more effort will need to be put into increasing awareness of Hungary in Hong Kong. During his visit to Hong Kong on 1 December, Szijjarto signed an agreement to mark the establishment of a bilateral Working Holiday Scheme for young people from the two places. The scheme will commence operation on July 1 2017, and will allow up to 200 people between the ages of 18 and 30 to stay for a year and work for a maximum of six months to finance their stay.

"My intention for coming to Hong Kong was to sign the Working Holiday Scheme, which we have achieved. What I would like to conclude very quickly here is the ongoing negotiations for permission for more Hungarian food exports to enter Hong Kong," he said.

Hungary is predominately an agricultural country, but given the geographic distance from Hong Kong it is difficult to compete on quantity, but he believes there is huge potential to compete on quality.

"So far we have permission to export poultry and pork to Hong Kong, and that has been going very well. We have just agreed on the license for Hungarian exports of veal, and we are about to come to an agreement regarding rabbit and lamb meat," he said.

Increasing agricultural exports will be the icing on the cake. More significant will be reaching an agreement for the mutual protection of investments, which will make Hungary’s personal income tax rate of 15% and corporate tax rate of 9% all the more appealing to Hong Kong investors. This will be an important piece of the puzzle that will improve the success rate of Hungary's plan to be the end-point of the Mainland's Belt & Road ambitions.

Hungary applied to join the Asian Infrastructure Investment Bank (AIIB), and it is expected to be accepted in early 2017. "We think we can bring to the table infrastructure development as we have been preparing for the modernization of the railway from Budapest to Belgrade. Once completed, there will be no question which would be the fastest way to deliver Chinese goods from the Greek port of Piraeus to the Central and Western parts of Europe," he said.

The railway line will be used mainly for cargo trains up to 740 meters long and with a speed of 160 km per hour. Direct flights between Beijing and Budapest first took off in May 2015, which resulted in a 30% increase in Mainland Chinese tourists visiting the country, and a 22% increase in Hungarian exports.

"I have raised the issue of direct flights with the secretaries of the Hong Kong Government and I have received some promises that they will bring it to the attention of Cathay Pacific, so of course we would be very happy if we could start direct flights between Hong Kong and Hungary," Szijjarto concluded.

This article was firstly published in the HKGCC magazine "The Bulletin" January 2017 issue. Please click to read the full article.

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