Chinese investment in Europe is no longer about buying companies. It has shifted to building factories inside the EU. As China deepens its physical presence, the EU is discovering that its policy—designed for an era of mergers and acquisitions—is out of sync with economic reality.
The EU and China are talking again. Hungary’s most China-friendly government in a generation is gone. A sweeping new foreign direct investment (FDI) screening framework is on its way. Europe seems as though it may finally have a coherent China policy. But this policy has arrived just as the role of China has moved beyond this mandate, leaving Europe addressing the wrong problem.
Chinese investment in Europe has fallen sharply from its peak — from roughly €90 billion in the 2010s to around €10 billion a year today. But where China invests matters more than how much. Greenfield investment, where Chinese firms build plants directly in Europe, now accounts for 78 percent of Chinese FDI in Europe, concentrated heavily in cars and batteries.
This is not what was the stated objective for the European Parliament delegation that visited China earlier this month, the first time the EU has done so in eight years. The delegation went to address e-commerce challenges and their impact on the European single market.
You might be interested
European politicians arriving to talk shop, left with larger concerns about the way Europe is viewing China. “Brussels still views China through the lens of the world’s factory. But that hasn’t been the reality for a long time,” said MEP Stéphanie Yon-Courtin (Renew/FRA), who was part of the delegation.
Yesterday’s solution
A recent analysis by the Centre for European Reform found that, while China is indeed leveraging overcapacity, it is no longer looking to buy European companies, but to build factories across Europe. A risk that has been dormant in the broader conversation.
“The risk is that Europe has solved yesterday’s China problem—takeovers—but not tomorrow’s: industrial location,” the report by James Green and Sander Tordoir at the Centre for European Reform states.
Yesterday’s solution is the EU’s updated FDI screening framework, which was agreed to in December 2025. It was designed primarily around mergers and acquisitions; greenfield investment was overlooked.
And even where the EU is focused, the implementation gap is substantial. The new screening doesn’t enter into force until summer 2026, with an 18-month implementation window after that. In the meantime, Chinese manufacturers are already inside the single market, circumventing the bloc’s own trade defences.
The Hungarian question
The primary entry for Chinese industry, Hungary, is now an active variable for both Europe and China. Péter Magyar’s landslide victory in parliamentary elections on 12 April ended sixteen years of rule by Prime Minister Viktor Orbán with a supermajority that will enable him to amend Hungary’s constitution, and redirect the entire domestic regulation and foreign policy of the country.
Magyar has pledged to align Hungary more closely with EU rules, reviewing Chinese investments with an eye on environmental standards, labour conditions and local economic value. The question is whether alignment on paper translates into a meaningfully different investment environment.
“That realignment carries direct consequences for the regulatory arbitrage that made Hungary a preferred entry point for Chinese capital. Specifically the willingness under Orbán to bypass meaningful investment screening, waive reciprocity conditions, and fast-track approvals that other EU member states would have subjected to far greater scrutiny,” said Alicia García-Herrero, chief economist for Asia Pacific at Natixis and senior fellow at Bruegel, a Brussels-based think tank.
Under Orbán’s Eastern Opening policy, Hungary became China’s preferred gateway into the single market. This attracted China’s Contemporary Amperex Technology Co., Limited (CATL) €7.3 billion gigafactory in Debrecen, BYD’s first European passenger EV plant in Szeged, and substantial investments from NIO and EVE Energy. All with generous state subsidies and minimal scrutiny.
Magyar’s entry will not mean a swift 180-degree turn in Hungary, however. “The more likely trajectory is a quieter tightening at the margins — stricter application of the EU’s Foreign Subsidies Regulation, genuine enforcement of Hungary’s investment screening mechanism rather than treating it as a formality, and a higher bar for new greenfield approvals in sensitive sectors,” said García-Herrero. “That closes the loophole incrementally. It doesn’t slam it shut, but it does meaningfully erode the structural advantage Hungary offered Chinese investors under Orbán.”
Moving south
Spain is already emerging as the next preferred destination. The structural incentives that made Hungary attractive — lower manufacturing costs, EU market access, governments willing to deal — are replicable elsewhere. And at larger scale.
In September 2024, Spanish Prime Minister Pedro Sánchez abruptly reversed his position on EU countervailing duties on Chinese EVs as China’s Envision Group announced a $1 billion green hydrogen park in Spain. CATL is currently negotiating a €4.1 billion battery factory in Zaragoza.
The road ahead
“Whether the Chinese could or would invest anymore substantially into Hungary — no matter who is in government — is a major question mark,” said a prominent Hungarian researcher on background. “Hungary has already run out of available labour force, energy, water. Even if (Orbán’s party) Fidesz had won, I had serious doubts about further Chinese investment at the same level of magnitude.”
What remains unresolved is whether Europe’s renewed engagement with Beijing reflects genuine strategic recalibration or something more opportunistic — a signal to Washington that Europe has options in a world where transatlantic ties are fraying.
“The fundamental economic conundrum will not be solved. The Chinese keep exporting, they want to export, and Europe doesn’t want to absorb all the Chinese overcapacity. I’m not sure whether European overtures toward China are genuine or part of a tactic to make the Americans think twice about NATO,” they said.
