The West’s missteps in Hungary and Serbia could wreak havoc beyond the Balkans

The implicit messages after Mr Xi’s visit

After a history of generous EU investment in Hungary, mainly from Germany, China has emerged as the dominant player, consolidating its business presence in Central Europe. This move lays the groundwork for potential Chinese political and industrial expansion on the continent. It is also a contingency plan in case Brussels imposes tighter controls on Chinese exports.

Prime Minister Viktor Orbán’s actions illustrate the challenges that the European Commission and most EU members face in curbing his veto power and his separatist deals – previously with Moscow and now with Beijing – deals that are made without much regard for solidarity, common EU interests or NATO policy. Ironically, leaders like Vucic and Orbán are adopting tactics reminiscent of Ostpolitik.

China’s success in replacing Russia in sectors such as exports and investment in the EU and the Western Balkans, beyond energy and raw materials, is remarkable. After the fall of the Berlin Wall, Russia tried to use energy to build a long-term financial and political base in Eastern Europe, particularly in Serbia and Hungary. However, both countries are now moving towards Chinese partnerships, with Hungarian institutions such as OTP Bank and MOL, which grew in part on Russian energy revenues, becoming key players in south-eastern and eastern Europe.

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The West’s recurrent mistakes

The political and economic ties with Russia have supported the rise of soft autocracies led by Orbán, Vucic and others, and fostered pro-Russian lobbies in Western politics. The West’s initial tolerance of leaders like Putin and Orbán, driven by the belief that business ties would ensure broader mutually beneficial cooperation, has led to unforeseen complications and deeper predicaments. Such miscalculations are common among politicians who underestimate or ignore the legacy of Russian imperial politics.

For centuries, the Kremlin has upheld a tradition of dominance through military power as the basis of its international standing, perpetuating the idea of sacrificing lives for territorial expansion and dominance. The war in Ukraine, now rapidly approaching a sad record of half a million Russian casualties, testifies to Putin’s fidelity to this creed.

Leaders like Orbán and Vucic may be seen as subservient to the Kremlin’s interests. However, their strategic shift towards closer economic and energy ties with China and Russia is not a hasty decision by servants, but a calculated, deliberate move with long-term implications. Just like in Russia, this approach is rooted in a revanchist drive, with Orbán asserting Hungarian minority interests in neighbouring countires and Vucic envisioning a revitalised Yugoslavia centred around Serbia. By using Beijing and Moscow as counterweights to the influence of the EU and NATO, these leaders are attempting to implement a strategy that profits from global rivalries.

Autocrats of the world, unite!

Beyond economic considerations, China’s new overtures to Eastern European autocrats now feature a critically important new facet: security cooperation. Initially focusing on energy security, this evolving partnership is likely to include military and political dimensions. The supply of Chinese arms and military equipment, particularly to Serbia, seems logical and almost inevitable after President Xi Jinping chose to make his first European overture in Serbia, a non-NATO, non-EU country. By establishing a “community of shared future” with Vucic, Xi Jinping is strategically positioning China as an alternative to the US, the EU, and generally the West.

China’s previous engagement with Central and Eastern European countries faced diminishing support due to persistent trade imbalances and unfulfilled investment promises. However, a shift is underway, with Serbia and Hungary serving as testing grounds for a new Chinese approach to expanding its influence through strategic engagement. This approach pre-empts potential trade barriers in the EU and aligns China’s supply chains with Eastern European countries. Despite the European Commission’s attempts, backed by Germany and France, to protect the EU’s vital industries, Hungary and Serbia have opened the gates of the European common market to Beijing. Budapest’s and Belgrade’s lines are also at odds with President Biden’s recently announced measures, one of the rare areas of shared policy with Donald Trump.

President Xi Jinping’s visits to Hungary and Serbia are expected to exacerbate existing divisions within the EU over its political main agenda, in particular the implementation of climate-friendly economic and energy policies and the support of its defence industry in line with its commitment to Ukraine and the EU’s common security. Prime Minister Viktor Orbán’s contrasting stance on China underlines his significant divergence in strategic priorities.

The European Union’s approach to relations with China is undergoing a significant shift, driven by security concerns – particularly in the energy sector – and the promotion of green policies that rely heavily on Chinese renewable energy technologies and equipment. China’s stronghold on rare earth metals, its dominance in electric vehicle production, and its solar and wind energy technologies have all made the EU rather dependent on Chinese imports. Rather than implementing the original plan of enabling the global export of renewable energy technologies from the EU, in line with the climate change mitigation policies, the EU is now finds itself in concurrent trade, economic, technological, political and ultimately security deficits. Unfortunately, this has been exacerbated by the hasty and unbalanced implementation of the Green Deal, a faux pas that created new strategic openings for Russia to exploit fossil fuels and for China to exploit renewable and green energy as avenues that run against the core interests of the EU, the US and the West.

Blending Mr Putin’s energy with Mr Xi’s capital

Against this backdrop, Hungary under Mr Orban and Serbia under Mr Vucic have emerged as key investment hubs providing strategic access to Mr Putin’s energy exports (such as natural gas via Turkey and Bulgaria and crude oil via the Druzhba pipeline) and Mr Xi’s investments in infrastructure and green technology.

The political synergies between Moscow and Beijing are evident, for example, in the recent announcement that the Shanghai Electric Group has signed a deal to build a 200 megawatt (MW) gas-fired cogeneration plant in Serbia, which will run on Russian gas and supply the Pancevo oil refinery operated by the Serbian oil company NIS, majority owned by Russia’s Gazpromneft.

Another example: Mr Xi’s recent visit to Hungary highlighted the strategic importance of investments by BYD, a leading electric car manufacturer, CATL, a leading electric car battery supplier. As a result, the EU’s push for decarbonisation and zero emission initiatives, particularly in the transport sector, will require increased cooperation with China, involving the entire supply chain down to intermediary companies and end users,  but resting on China’s home manufacturing base.

Hungary and Serbia, acting as proxies for Chinese economic and political interests, will strengthen the case for autocratic governance in the EU. As a result, Mr Orban and Mr Vucic are likely to shift their from declining Russian energy revenues to a more diversified economic partnership with China. This patterns could be emulated by other countries and nationalist political figures in the Western Balkans and Eastern Europe, potentially challenging and undermining the role and the interests of the EU and NATO in the region.

Bulgaria in the picture

Now the only gateway for Russian gas via pipelines to the EU, Bulgaria is at a fork in the road: choose alliances with China and Russia, or maintain and improve its relations with the EU.

In coordination with Russia, China has made a tempting offer to Bulgaria’s political leadership, mainly to the ruling trio of President Radev, Mr Borissov and Mr Peevski, similar to what has been offered to leaders such as Mr Vucic and Mr Orban. The potential for a Russian and Chinese breakthrough should not be discounted, especially as Mr Borissov and Mr Peevski recognise the challenge of reconciling their corrupt practices with the European and Atlantic values espoused by the EU and NATO. Without maintaining corruption and its benefits, their authority is likely to erode, and with Russia and China it is likely to gain strength.

While Western powers acknowledge the complexity of Russian and Chinese politics, the geopolitical landscape is undeniably evolving under the influence of these strategic realignments. Indeed, events beyond Serbia, Hungary and Bulgaria, such as those in the RNM, Moldova, Georgia and Armenia, reveal a common root – the Kremlin’s all-out determination to challenge and win against the West’s embrace of democracy, human rights and free markets. In this effort, China sees opportunities for itself and is willing and able to exploit them. If only those in the West who advocate a choice between China and Russia had the wisdom to avoid being caught between a rock and a hard place.