Weekly Briefing, Vol. 45. No. 2 (HU) November 2021
Trade between Hungary and China: The fourth China International Import Expo 2021
After last year’s decline, international trade boomed in 2021. The decline was caused by the first and second waves of the global pandemic, but international trade in goods recovered in 2021. According to UNCTAD’s recently released estimates, the value of world trade will be 20-28 percent higher than in 2020. The WTO forecast is less optimistic, but it too projects that world trade will grow by about 10 percent in 2021. However, the increase in trade does not mean that the upswing will be evenly distributed across the global economy; rather, there are also attempts to reshape the patterns of international trade. Trade relations between Hungary and China have clearly benefited from the new situation. With the exception of South Korea, they have grown significantly faster than all of Hungary’s other trade relations.
Introduction
The China International Import Expo 2021 is one of the attempts to sustain the globalization process that seems to have stalled after the global financial crisis. After the decline in global trade volume last year (-5.3 percent in 2020), any event that promotes and boosts international trade is obviously a positive sign. Approximately $70 billion in actual business was registered at this show, a slight decrease of 2.6 percent from last year. Despite the considerable number of deals brokered and the volume of trade deals, the expo held in Shanghai serves to highlight China’s openness to foreign exports. This symbol of openness is extremely important at a time when global supply chains are disrupted and there are significant bottlenecks in international trade. This briefing looks first at the broader context of the China International Import Expo in a post-pandemic global economy and then at how trade between Hungary and China has evolved in 2021.
The broader context of the China International Import Expo
In this part of the briefing, we briefly analyze the significance of the event from the Chinese and Hungarian perspectives. The Chinese president gave a speech at the opening ceremony of the export and stressed the importance of maintaining globalization. As he put it, “We must stay on top of the prevailing trend of economic globalization, and support countries around the world in opening up wider while rejecting unilateralism and protectionism.’ As we can see, globalization is interpreted as a process that relies on multilateralism. This is an important aspect for China because the United States wants to reshape global supply chains mainly for geopolitical reasons. Attempts to reshape global supply chains in favor of the United States began in 2016 under the Trump administration and produced some results, according to the Kearney Reshoring Index. If we look at the U.S. manufacturing import ratio, we can see that the ratio of the 14 low-cost Asian countries in U.S. manufacturing imports has not changed since the Covid 19 crisis. This share fell from 13 to 12 percent, but immediately rose back to 13 percent in 2021. A significant change can be seen in China’s share. A few years ago, China’s share of U.S. manufacturing imports was 66-67 percent; today it is 57 or 58 percent. (This decline in Chinese exports has been largely offset by an increase in Vietnamese exports to the United States.)
In other words, opening up to other parts of the world in terms of trade is also important. It must be added that China has been successful in this effort. China is not only a manufacturer of components, but also of final products. For this reason, Chinese exports to the US have increased by 18 percent in 2020! It is also worth remembering here that according to the National Bank of Canada, in 2002, 80 percent of countries traded more with the U.S. than with China, but this pattern has changed, as 70 percent of countries now trade more with China than with the U.S. Of the 16 countries, only the Baltic countries are in the group of countries that trade more with the United States than with China.[1]
As far as Hungary is concerned, the need to diversify trade is the main motivation for the Eastern Opening Policy launched in 2011. Most of Hungary’s exports go to the EU, and the share of EU members was 77.3 percent in 2020. This is not a problem if the region is booming and trade growth can only come from countries where trade has boomed despite the global pandemic. This was the case with China after the global financial crisis and also now during the pandemic. While Hungary’s total exports shrank by 3.8 percent in 2020, exports to China have changed dramatically, increasing by 22 percent in 2020 compared to 2019. We must add that Hungary’s trade balance has deteriorated and the deficit was 6.1 billion euros in 2021, but there are two aspects worth mentioning. As Hungary serves as a trade hub for Chinese goods in the EU, a significant part of these goods are immediately exported to other EU members. For this reason, the improvement of the overall trade balance is a more important indicator. If the trade balance became negative, the negative trade balance with China would obviously be a problem. However, this is not the case, as the overall trade balance in 2020 shows a surplus of EUR 5.6 billion.
Detailed Chinese Hungarian trade data from 2020
Outside the EU, China is Hungary’s biggest partner, as trade relations have been developing rapidly for many years. From the Chinese perspective, Hungary is the third largest partner in the region after Poland and the Czech Republic. If we want to characterize the trade between the two countries, it can be called intra-industry trade, as about 50 percent of Hungary’s exports are machinery goods and about 60 percent of China’s exports to Hungary are also machinery goods. Although trade between the EU and Hungary decreased in 2020 due to the pandemic, Hungary’s exports to China increased by 4.3 percent and imports from China increased by 18 percent in value.
In 2020, China became the largest investor in Hungary. To boost trade, the Chinese made major investments in transportation and logistics. After Greece and Serbia, Chinese logistics investments in Central Eastern European trade targeted Hungary in particular. According to data analytics firm Upply, rail freight traffic between China and Europe via Hungarian and Ukrainian border crossings increased tenfold in 2020. In addition, the East-West Gate Terminal (EEC) in Záhony, which will become operational in 2022, will give a boost to Chinese trade via Hungary.
Geopolitical aspects may play a key role in the development. If tensions on the Polish and Belarusian borders were to continue, more trade could also pass through Hungary. Another example is that Hungarian agricultural exports to China could increase significantly for two reasons. At the summit between Chinaand CEE, China promised to increase agricultural imports from the CEE region by 50 percent over the next five years. We should add that Hungary could increase its beef exports to China as geopolitical tensions between China and Australia negatively affect Australian beef exports to China.
In addition to growing land freight opportunities, Budapest is increasingly acting as an air cargo hub for Chinese goods. From 2021, we have two terminals – one in Budapest and one in Zhengzhou – dedicated exclusively to air cargo traffic between Hungary and China. Alibaba’s logistics subsidiary will also use Budapest as an Eastern and Central European distribution centre from 2021.
Summary
Although trade between China and Hungary developed positively in 2020, we expect a more dynamic development in the coming years. The improvement of trade infrastructure is the basis for future development and 2019-2020 and 2021 seem to be the years of preparation for more intensive trade relations between the two countries.
We must also add that the Hungarian prime minister sent a recorded speech to the fourth China International Import Expo, in which he stressed the growing importance of bilateral trade. He pointed to the global shift of power in the economy, which he put this way: “The redistribution of economic power is taking place before our eyes.” He added that it is extremely important for Hungary to participate in China’s economic development. In this context, it is worth noting that Prime Minister Candidate from the opposition camp called for a total review of Hungary-China relations in the South China Morning Post. He said that, in his opinion, the Orban government’s China policy is contrary to Hungary’s interests, and he is also revising all the deals reached and signed between Hungary and China. In case of his victory, this policy would have a negative impact on Hungarian-Chinese trade relations.
[1] National Bank of Canada (2021). Geopolitical briefing. May 17, 2021. Retrieved from: https://www.nbc.ca/content/dam/bnc/en/rates-and-analysis/economic-analysis/GeopoliticalBriefing_210517.pdf