Chinese financing of Hungarian projects and sovereign debt

At the beginning of November I wrote about Viktor Orbán's trip to Shanghai where he met the Chinese prime minister. In a fairly short meeting Orbán expressed his desire to expand economic and financial relations with China. A month later Tamás Fellegi, minister of national economic development, was named commissioner in charge of Chinese-Hungarian affairs. I might even have made a crack about this appointment's being rather unfortunate. Earlier Fellegi was named commissioner in charge of the Russian-Hungarian negotiations and see what happened there. A disastrous visit by Viktor Orbán to Moscow, several postponed trips to the Russian capital by Fellegi. And today's news is that the Russian oil company Lukoil is retiring from its wholesale business in Hungary because of the extra tax levies that it finds too high, making its operation a losing proposition. They are keeping about 100 filling stations, however.

So, anyway, Fellegi went off to Beijing on December 6. He was entrusted with expanding Chinese-Hungarian economic and commercial cooperation. He was to pay special attention to Chinese investment in Hungary. Fellegi spent four days in the Chinese capital, and on his return he gave a very optimistic account of the negotiations and the prospects. The Hungarians tried to convince the Chinese to import "Hungarian technology." For the life of me I can't think of any specifically Hungarian technology the Chinese might need. But surely the main emphasis had to be on Chinese investment in Hungary. Indeed, there were "difficult negotiations" concerning MALÉV, the Hungarian airline that was just rescued from a bankrupt Russian company. Although negotiations were difficult, the optimistic Fellegi continued, "they are on the road to success." They talked about Chinese investment in the Hungarian railroads that are in truly rotten shape. The Hungarian delegation also met with the chairmen of four large construction companies with expertise in building airports.

At the time that the MTI report appeared the last sentence escaped my attention, but now I remember that one of the sanguine Hungarian ministers talked lately about developing the most important air traffic hub in the region in Budapest. And there was something else that didn't mean much to me at the time. The chairman of the Center for Sovereign Debt, Gyula Pleschinger, was a member of the four-man delegation to Beijing.

Today it all became clear when Tamás Fellegi gave an interview to Index, an Internet paper. Fellegi's name appears often enough in the papers but this is the first time that I encountered an interview with him. What is my impression? Not the best. He is brusque, antagonistic, and not at all diplomatic. However, he seems to be devoted to Viktor Orbán. When the journalist pressed him for his opinion on the media law, he could have avoided answering the question by saying that it is not his bailiwick. But no, he decided to defend it. When he was asked whether he agreed with every move of the government in the last six months, his answer was an unqualified yes. I guess a member of the cabinet cannot say anything else, but I think there are ways to avoid giving straight answers. Most likely a more experienced politician would have been able to do so, but Fellegi is not an experienced politician.

 

As the matter of fact, I don't think that he has any real background in such delicate international economic and financial negotiations. Especially not with such old hands at the game as Russia or China. After finishing law school in Hungary, he got a Ph.D. in political science at the University of Connecticut. His connection to Viktor Orbán and Fidesz goes back a long way. As a young instructor at the Budapest Law School he taught courses in the college where Fidesz was born. He was one of the editors of the periodical published by the students called Századvég. After his return to Hungary in the mid-1990s he embarked on a business career. He bought shares in several media outlets. But I don't think that negotiating about Chinese-Hungarian financial strategic cooperation is his strength.

What else is not his strength is giving judicious interviews. When asked about the rumors circulating that Hungary is hoping to involve China in the financing of Hungary's sovereign debt, he decided to expand on his negotiations in Beijing. According to Fellegi, the topic of "strategic financial cooperation" between the two countries was first brought up by the Chinese prime minister. Viktor Orbán welcomed the idea and thus the main thrust of the Chinese-Hungarian negotiations was defined. He told his interviewer that he also met the chairman of the Chinese Central Bank, the president of the Chinese Export-Import Bank, and the chairman of the Chinese State Investment Bank. A Chinese delegation will be coming to Budapest in January where the negotiations will continue. When the journalist inquired whether it is a good idea to give special privileges to the Chinese in purchasing Hungarian sovereign debt that might make Hungary too dependent on China, Fellegi snapped back: "Why? Is China any worse than any other country?" He reiterated that Hungary, which earlier broke off talks with the IMF, wants to finance its debt from the markets.

A few hours later two Chinese journalists were at the doorstep of the Chinese Central Bank where they inquired whether China is actually planning to be a major player in Hungary as Fellegi indicated.  Reuters explained that "Hungarian Development Minister Tamas Fellegi was quoted as saying on a local news website index.hu on Wednesday that China may buy Hungarian debt following talks between Hungarian Prime Minister Viktor Orban and his Chinese counterpart Wen Jiabao in Shanghai in late October" but "China's central bank declined to comment on a report that it is considering financing various Hungarian projects, including buying some Hungarian government debt."

China is extremely eager to invest in Europe. On December 23, 2010, a Chinese Foreign ministry spokeswoman said that the country was willing to help countries in the euro zone return to economic health and will support the International Monetary Fund bail-out package for the zone. The whole of Europe is of interest to China because after all the European Union is a huge market for Chinese goods.

China is sitting on outsized foreign-exchange reserves (a total of $2.648 trillion at the end of September) and is looking for ways to diversify out of U.S. Treasuries and earn a higher return. European debt, especially marginal debt, is particularly attractive to the Chinese. Last week they agreed to invest four to five billion euros in Portuguese bonds to help Portugal refinance 15 billion euros worth of debt due to expire in April.

Moreover, China is looking for investment deals all over the world, so I have no doubt that Hungary remains on its radar screen. But the Chinese are very tough negotiators, and I fear that in comparison Tamás Fellegi is a babe-in-arms.

 

Comments

[Thomas]

"His connection to Viktor Orbán and Fidesz goes back a long way. As a young instructor at the Budapest Law School he taught courses in the college where Fidesz was born. He was one of the editors of the periodical published by the students called Századvég. "
His connection was much, much more than that. He was one of the (if not THE ONE) persons who as a close friend and mentor worked with Orban at the very beginning, giving Orban the ideological background at the time of the start up of FIDESZ.
One of those who changed his ideology 180 degrees. Many old friends of his keep in touch with him, but there is a unspoken rule in order to keep the friendship; never talk about politics.

[NWO]

Hungary could desperately use China's help, including finding away to attract the Chinese to acquire sovereign debt and to acquire assets (eg, Borsodchem). The irony, at least for me, would be rich, however.
The best thing China could do, however, is export another couple hundred thousand young people who would be willing to settle in Hungary long term and supplement the existing Chinese/Hungarian community. Hungary needs young people, and it needs people willing to work hard (something Hungary is unlikely to get from the pensioners from Romania and Ukraine knocking on the door to get in).

[Joseph Simon]

'For the life of me I cannot think of any Hungarian technology...'
Well, export revenue of Information Technology companies amounted to EUR 9 billion in 2OO7. In fact hardware products make up some 89% of Hungarian IT exports. Hungarian companies manufacturing for European and global markets drive Hungary's exports in general: consumer electronics, electronic components, telecommunication equipment, etc.
Kürt Kft. for example offers cutting edge technology for high security IT systems.
IT Ware Kft. markets and speacializes in high-profile IT services including vehicle fleet managament systems. And the list goes on. The Technical University in Budapest is a global leader in high-tech software development. No wonder the Chinese are interested.

[Minusio]

Joseph Simon: How big would Hungarian exports be if you deducted those generated by Foreign Direct Investment? If you deduct tourism (the other source of forex income) as well, there isn't much left.

Just for the record: Two thirds of Hungarian exports are FDI-based. And even three quarters of the exports are produced by multinational companies.

Kürt Kft. is a very small company that 15 years ago would even come around to your home to repair your PC.

[someone]

I have to agree with Joseph. Hungary is a leader in high tech technology, although many of the high tech expert leave Hungary. Hungary is very good in computer (software) tech, computer apps and such, and these are things that do drive the global market too.

Below is a quote from the Chinese Ministry of Commerce website. Although it is only 2 months statistics it seems that China is in trade surplus with Hungary, so probably what is happening that, just what China did with the US, in order to "help out", they started to purchase USA Treasuries (debt). Will this be good for Hungary? Only time will tell, but it is a dangerous game, as China does manipulates the worth of its currency.

"According to the Hungarian Central Statistical Office (HSCO), Hungary-China foreign trade volume of the first two months of 2010 amounted to US$784 million, among which, Hungary’s export to China was US$174 million, up by 103.6%, and its import from China was US$610 million, up by 3.6%. Moreover, Hungary-Hong Kong foreign trade volume of the first two months of 2010 amounted to US$130 million, among which, Hungary’s export to Hong Kong was US$20 million, and its import from Hong Kong was US$110 million."

[wolfi]

Yes, all that crap you see in the market stalls in every Hungarian town is imported from China...

When will people learn that "you get what you pay for" ?

PS: I know that China does manufacture high quality products like all Apple phones and computers, but these come at a price ...

On the other hand industrial products from Hungary don't have a good reputation either in Germany ...

Only those products under quality control from those dreaded Multi-National-Companies like Audi (and many others who invested in Hungary) are known to have a good quality - there it doesn't really matter where they are produced ...

PS: It's different with Hungarian foodstuff - my friends in Germany always ask me to bring them honey, paprika and other vegetables, wine and palinka, ham or bacon and the famous pumpkin seed oil!

[Joseph Simon]

Well, that is why these small Hungarian IT companies need a large market like China's.
Remember how small Apple was. Or how Japanese products had the reputation of having poor quality. They all developed into giants because of the improvements that could be made by participating in a large consumer market. That is exactly the kind of global exposure Hungary needs.

[Mutt Damon]

I don't think we can compete with the Chinese companies on the software market. Their manufacturing costs are a lot cheaper. Also they are VERY competent. These guys can steal the latest iPhone before it shows up in the Apple store in my hood. I'm not sure if there is anything that the Hungarian companies can sell on the Chinese market. They would rather be interested in investing companies that work for the EU market. Maybe in the agriculture.

[Eva S. Balogh]

Mutt Damon: "I'm not sure if there is anything that the Hungarian companies can sell on the Chinese market."

Neither am I.

[Paul]

Well, it's nice to see 'Joe' being so formal with us. And I am amazed at his grasp of manufacture and export statistics. Almost as if he's being fed these 'facts' by someone in government...

As for Hungary having anything China might want (except the chance to make more money), dream on. China can make and grow anything it wants or it wants to export. Have you seen the size of the place, the number of geographic and climate zones it covers, its natural resources, the number of huge cities and industrial complexes? Never mind its population.

Since meeting my wife and becoming acquainted with Hungary, nearly 10 years ago, I have been constantly on the lookout for Hungarian products in British shops.

Lightbulbs. That's it. No single other manufactured item, and, perhaps even more damning, not a single agricultural product. Even the paprika and uborka we get here doesn't come from Hungary. And the Debreceni sausage in Lidl - guess where that doesn't come from?

But do the same exercise for Chinese products and you have a list as long as your arm in minutes. I went through all our Christmas presents trying to find one that DIDN'T come from China - I found just one, a rather cheaply made wooden children's puzzle, that looked rubbish and didn't work very well.

And if anyone in Fidesz thinks that the Chinese might like to invest in Hungary as a good route into exporting into the EU, I don't exactly notice them lacking good routes already. Why, when they can already flog as much as they like to the heart of Europe, should they want to waste money investing in a poor, unstable country on the fringes?

China's only interest in Hungary are financial and political, and both come with very heavy price tags. If I was OV, I'd go to the Budapest opera and watch Faust before signing anything with China.

[Paul]

PS - Mentioning China's population made me wonder just how it compares with Hungary's.

It's a lot bigger, obviously. Im fact China has about a fifth of the world's population - about 130 times Hungary's.

It's also growing, despite the one child policy, whereas Hungary's is declining. In fact China's population grows by roughly Hungary's total population every year. If OV wanted to double the population of Hungary, all he'd have to do is take China's population surplus for just one year. Of course, he might not have Jobbik's support on such a measure...

In case the above isn't mind boggling enough, try this little thought experiment. You are a neighbour country to China and you manage to upset them so much that they decide to invade your country.

However, you're not important enough to wage real war on, so the Chineses are just going to walk into your country, unarmed. So,all you have to do it shoot enough of them each day, so that they see will soon see the folly of their ways. Roughly how many would you have to shoot each day?

Well, you'd have to kill over 27,000 of them EACH DAY, just to keep the population from getting any bigger. Any less than that and there are more Chinese in the evening than there were in the morning.

And if you think that's scary, India has about the same population and their population increase is a higher than China's. Mr and Mrs Jobbik's children will be growing up in a world where more and more of us look like Czigany.

[Wong]

I am a Chinese. And I sincerely hope the 2 countries can develope a mutually beneficial relationship.

But as for trade, unfortunately I will have to agree with the other comments that there aren't much the Chinese can buy from Hungary.

As for IT as mentioned by the previous commenters, China is actually a lot more advanced than most people realize. It's just that the Western media don't usually talk about it.

In the area of software mentioned by one commenter, only 3 countries dominated the world in the last 10 years (in terms of competency). #1 is Russia, #2 is China, and #3 is Poland. No other countries (including America) even come close.

(PS. ... but most of these people usually end up working for US companies such as Google and Microsoft instead of domestic companies. Nowadays, some are starting to work for local companies though. )

[wolfi]

Regarding IT the following story comes to my mind:

Around 35 years ago I was lecturing people on database design (which was a very esoteric topic in those days, SQL was just being developed by IBM, and not many people could imagine that it would run on millions of PCs - which just had been introduced, also by IBM).

After the course a young American programmer (actually he's three years older than me) came up to me and asked me what I thought of his idea to outsource software design to Budapest - he knew some clever Hungarian programmers and later founded a software company - but moved it to Austria later. His name is Harry Sneed and he was quite successful, even got the title "Kiváló dolgozó" in 1987.
http://de.wikipedia.org/wiki/Harry_Sneed

So there was a time when Hungary was at the forefront ofIT, even in socialist times - I wonder why not more came out of it ...

[Joseph Simon]

Paul, you mention statistics. While Hungary's trade balance is always in the black, 7 billion for October, that of Britain's is persistently negative, -142.8 billion for September. (For the US -632)
It is a pity that England can no longer send her viceroys to those hapless countries all over the world to rob them blind as she used to under the Imperial system. That option no longer exists. Hungary, surrounded by hostile neighbours, can still manage to stay in the black with hardly any significant resources. Also, the current-account balance for Britain is -35 billion, that figure for Hungary is +1.1. Still a bumpy road ahead for all countries.

[Mutt Damon]

@Wong "3 countries dominated the world in the last 10 years"

How do you measure this? Number of immigrant software engineers in he US by country? Try asking an Indian ..

This comments shows that pretty much all Eastern-European countries (and other politically challenged Asians) always imagined themselves as the software geniuses of the world.

[Mutt Damon]

Jozsi (Joe), I believe an overvalued Forint helped a lot with this positive monetary trade balance in the past 2-3 years. Also negative trade balance isn't always a bad thing. Can somebody competent give us a lecture on this? Thanks.

[Wong]

@Mutt Damon,

- "... pretty much all Eastern-European countries (and other politically challenged Asians) always imagined themselves as the software geniuses of the world"

No Mutt. You are making assumptions. There is no need to imagine. All you need to do is ask for the source.

Here is the source:

http://en.wikipedia.org/wiki/ACM_International_Collegiate_Programming_Contest#2004_World_Finals

This yearly international contest is the biggest and the most authoritative of its kind.

In the last 10 years, only 3 countries have ever won the world finals. They are Russia, China, and Poland.

( PS. ... and no Mutt, the number of "immigrant software engineers" is irrelevant when we are talking about competency levels )

[Mutt Damon]

@Wong Sorry, I didn't want to offend you. I'd tried to be sarcastic but apparently didn't work. Are your really Wong? You sound like our friend Simon Jozsi (Joe Simon) in off-fidesz mode .. :-)

College students solving algorithmic problems in 5 hour runs doesn't really mean "dominating in software" as you put it. This rather reflects the quality of the education systems and especially in case of the Eastern-European countries and China there is also a social and political aspect to it. Nonetheless it's an accomplishment and congrats to all the winners. I believe all countries have a lot of intelligent people I don't think this "dominating in software" category makes sense at all.

I'm looking at the stack of 8 open source books on my desk in front of me (I'm trying to catch up during the holidays). SpringDM, Flex, Scala, Cloud Computing, Hadoop, etc. Buzzwords of the present software industry (mostly Java related). All of these projects were started by Western-Europeans or Americans.

Comparing the software industry to the automobile industry I would say everybody can design an AUDI. The real thing is creating a company that sells hundreds of thousands of it and maintaining the quality for years. And this is what we don't do in Hungary. We brilliantly design a better car then we assemble the engines. This analogy is applicable to the Hungarian software talent as well.

[Paul]

I am reminded of an experience I had in the early days of IT (so early, we still used British mainframe computers - one of which used 'words' instead of 'bytes'!).

I was on holiday in Norway, and when my host discovered I was in IT, he asked how well known the main Norwegian computer company was in the UK.

I had never heard of the company he mentioned, but he was so certain that, as they were Norway's top IT company and Norway was so good at IT, they must be well known all over the world, that I assumed it was my ignorance that was the problem (I was only 20), and apologised to him for my lack of IT awareness.

On returning to the UK, I asked around about this Norwegian IT company, but no one had heard of them. I even asked visiting IT specialists, trainers, salesmen, etc, but still no one had ever heard of them.

[Paul]

'Joseph' - what's so great about a country having a positive trade balance? Very few countries do, and amongst the very many that don't are (the great majority of the world's most successful countries.

Indeed, one might almost take a positive trade balance as an indication of country with a not very active economy. OK, so China has a stompingly good trade balance, but Hungary is no China. In fact Hungary is a poor agricultural country, with low imports because it has a low standard of living. Not that much to crow about.

As for Britain's past, I am certainly no apologist for slavery and drug running (to name just two of our past evils). But then neither can I claim any credit for the development of parliamentary democracy, the industrial revoltion, railways, steam, steel, the computer, the hovercraft, the jet engine, the world wide web, and an endless list of other great benefits to the world produced by that overcrowed, damp little island off the edge of Europe.

But I am very certain of one thing, having grown up in one country, and lived in the other off and on for nearly 10 years - if we started from scratch, on a level playing field, I know which nation I would back to make rapid progress.

Whatever my guilt (or pleasure) in our past, we got to where we are now because we are doers, not moaners. If we don't like something, we do something about it, we don't just complain and wait for someone else to fix it.

OV would never make it past the loony minority party scene in the UK, but if he did, and if he started to do and say the crazy sort of things Fidesz does and says in Hungary, we wouldn't just sit back and let him destroy our country.

And we wouldn't waste our time posting on blogs as a pretend person trying to justify it.

[Wong]

@Mutt Damon,

(Happy new year)

No worries. I accept your argument relating to software (competency) domination. I was just trying to highlight the IT and software competency level in China.

And yes, "Wong" is my semi-long term alias. And no, I am not "Simon". But it probably wouldn't matter much as I am about to leave this forum. (Actually I don't know how I ended up on this forum)

[wolfi]

Hi, Wong!

If you still are reading this - please don't go!

Fresh viewpoints are always welcomed here - even if any statement you make might be looked at critically ...

PS: I used to work in IT too as a consultant and went to Bejing around 20 years ago to help a German bank evaluate a project there - I was really impressed by the quality of the work done by the people there and the intellectual level - and of course China has come a long way in the meantime!

[Wong]

Hi Wolfi,

Thanks for the invite to stay.

Unfortunately I know too little about Hungary to make worthwhile contributions.

But it's good to know that you value my contributions on this particular China-related thread. I might come back here occasionally to see if there is another similar topic I feel comfortable joining in the discussion.

[wolfi]

Thank you, Wong!

Some of the discussions here you might find a bit strange - but just take a look at what's happening not only in Hugary but the EU generally.

[dromard]

Chinese can only be interested for geo-strategic reasons : they cannot expect anything else from Hungary.
As for Greece, Portugal, Spain and probabaly some other ( Irland may be), they want to be able to pressure the EU against the USA, Russia, India, and, Africa.