EU headed for 'economic cold war' with China, Hungary's Orban says

By Gergely Szakacs and Anita Komuves

BUDAPEST (Reuters) -Hungarian Prime Minister Viktor Orban warned on Friday that the European Union was headed for an "economic cold war" with China as the bloc's leaders prepared for a pivotal vote on imposing tariffs on imports of Chinese-made electric cars (EVs).

EU member states will vote on Friday on whether to impose tariffs for the next five years of up to 45% on imports of Chinese-made EVs in the bloc's highest profile trade case, which risks retaliation from Beijing.

Under Orban, Hungary has become an important trade and investment partner for China, in contrast with some other EU nations that are considering becoming less dependent on the world's second-largest economy.

"What they are making us do right now, or what the EU wants to do, is an economic cold war," Orban told state radio in an interview, referring to the proposed tariffs on China.

Earlier on Friday data showed Hungary's industrial output falling by a worse-than-expected 9.5% in August, which Budapest said was due to the weakness of the German economy, the destination for around one quarter of Hungary's exports.

Orban, who has spearheaded a drive in central Europe to bring Chinese EV and battery manufacturing plants to Hungary, said his landlocked country did not want to be squeezed into either bloc and wanted to keep trading with both sides.

He said products made in the EU would be increasingly difficult to sell if the world economy is split into two blocs, adding it was unclear whether Hungary's strategy of "economic neutrality" would stand the test of time.

CHINESE INVESTMENTS

One of the biggest Chinese investors in Hungary, CATL, is building a 7.3 billion euro ($8.05 billion) battery plant in the eastern city of Debrecen, while Chinese EV maker BYD announced last year it was building its first European plant in Szeged in the south of the country.

Last month Orban said Chinese firms had pledged investments worth 9 billion euros in Hungary so far, putting them on a par with companies from the United States, which has criticised Orban's strategy of forging closer ties with China.

"Doing business with China comes with strings attached, and the interest is often paid in sovereignty," U.S. Ambassador to Hungary David Pressman said in June. "We all know that Hungary cannot – for long – have it both ways."

With billions of euros worth of EU funding suspended over Brussels' concerns over the rule of law in Hungary, Budapest borrowed 1 billion euros from Chinese banks in April to finance infrastructure and energy projects in a deal whose terms have not been made public.

($1 = 0.9067 euros)

(Reporting by Gergely Szakacs and Anita KomuvesEditing by Gareth Jones)