How Orbán’s Eastern Opening brought Chinese spy games to Budapest

Chinese spy games in Orbán’s Hungary

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Those who tuned in to Klasszik Radio, a Budapest area classical music station, encountered something weird on June 24, 2011. The broadcast was suddenly interrupted, and regular European classical music was replaced by a Chinese-themed music-and-talk show. “The piece of music by Wagner or Bach that had currently been playing was cut off halfway. Then began some traditional Chinese music with crying instruments, introduced by Chinese people speaking dreadful Hungarian”, recalled former senior editor of Chinese-themed radio broadcasts Viktor Hankó to Direkt36.

The radio’s abrupt schedule change took exactly as long as a police-escorted drive from the airport to downtown Budapest. The Chinese show, according to the former staff member, had to be inserted so that “they could show to that one guy sitting in his limousine that there are Chinese broadcasts even on Hungarian radio.” The influential passenger in the car was Wen Jiabao, Premier of the People’s Republic of China, who had just arrived in Hungary. Prior to that, Chinese prime ministers had not visited Budapest for twenty-four years.

The instruction to change the program came on the telephone from the Chinese regime’s international radio arm, China Radio International (CRI), not more than 48 hours before the Chinese prime minister’s arrival. Subsequently, they sent over a prepared footage about China’s history and the greatness of Sino-Hungarian relations, which Klasszik Radio had to broadcast at the appropriate time. When Klasszik’s Hungarian head found out about this, the senior executive stated that there was no way he would approve. “He swore frequently. We were looking at each other shocked when we realized what kind of material we were supposed to air,” Hankó continued. In the end, though, they concluded they had no choice.

Klasszik was financially dependent on the Chinese state radio. In December 2010, Klasszik partnered and sold part of its airtime to one of CRI’s European subcontractors, the Finnish-registered but Chinese-owned GBTimes. The Hungarian station did not want to risk this nascent Chinese partnership. According to Hankó, the instruction from China Radio International was also repeated separately by GBTimes’ Finnish headquarters.

Wen Jiabao was said to be pleased with the show specifically tailored to him, which was translated by the interpreter sitting next to the Premier in the black car – at least that is what their Chinese counterparts told the Hungarian radio’s staff afterwards. The events were also confirmed to Direkt36 by Klasszik Radio’s then-senior executive.

In addition to Klasszik’s Chinese partners, Hungarian authorities have also done their fair share ensuring that the Chinese Premier would feel comfortable during his visit in Budapest. Hungarian police prevented pro-Tibetan activists from disturbing the Chinese prime minister’s motorcade with banners and shoutings. Moreover, the Hungarian immigration office summoned several Tibetans living in Hungary to check in exactly on the day of the visit. This marked a significant policy shift of Viktor Orbán’s party, Fidesz, which was already in government at the time. Two years earlier, several important politicians of the party had still protested for Tibet’s freedom in front of the Chinese embassy in Budapest.

Events surrounding the Chinese Premier’s visit forecasted quite accurately everything that have been happening in Hungarian-Chinese relations in the ten years that followed. That sunny day in June has shone a light on the ways that China exerts its political influence.

Nevertheless, the policy of ’Eastern Opening’, set out by Viktor Orbán in hope of tons of Chinese money, never actually resulted in momentous Chinese investments. The China-friendly environment in Hungary, on the other hand, came in handy for Chinese intelligence, which set foot in the small Central European country using incoming Chinese companies, institutions, university students, or even residency bond holders.

Direkt36 explored, through lengthy research, documents and databases, as well as more than sixty interviews and on background conversations, how China’s influence in Hungary has strengthened over the past ten years supported by the Hungarian government itself, and what the unexpected consequences have been. The Chinese embassy in Budapest did not respond to a request for comment for this article.

I. Eastern wind rising

Orbán’s trip to Beijing in December 2009 marked a major turning point in Fidesz’s relationship with China. “Hungary’s place on the world map is clear, we are members of NATO and the European Union. This means that we are flying a Western flag, but today there is an East wind blowing in world economy. Our sails must be turned accordingly,” Orbán told Hungary’s state news agency from Beijing. A source who was involved in organizing Orbán’s trip, said that “those who had been protesting for Tibet’s cause a few months earlier were suddenly faced with the need to look for external sources as they were preparing to govern”. The source added that already before the trip, it became clear that there was no other opportunity for available capital, technology or large market outside Western countries, but China.

Orbán flew to China accompanied by one of Hungary’s wealthies businessmen, Sándor Demján, in the tycoon’s own private plane. Fidesz’s economic policy maker, György Matolcsy was also with them. The goal was to establish relations with the Chinese Communist Party (CCP), to meet future Chinese president Xi Jinping, as well as to make up for Fidesz’s previous anti-Chinese remarks. Orban and his entourage were given accomodations at the CCP’s impressive guest house in south-eastern Beijing, receiving a polite but somewhat measured treatment. However, this was not because of previous anticommunist or pro-Tibetan statements. The reason was that although Orbán was confidently acting as Hungary’s next head of government, there were still months left until the elections.

According to one source involved in organizing this trip, Orbán’s Chinese counterparts have performed a “masterclass of realpolitik” as they overcame Fidesz’s previous anti-Chinese rhetorics.

“You can insult China while you are in opposition, but they will forgive you if you do something completely different when in government,” the source explained about the Chinese leadership.

According to a former senior foreign ministry official with the Orbán government, neither Orbán nor Matolcsy – the ideologue behind the ’Eastern Opening’ strategy – had harbored any „China persuasion”. Neither were they the first trying to exploit the opportunities and resources offered by China. Hungary’s socialist-liberal government led by Péter Medgyessy started building closer ties with China as early as 2003 – they were three or four years ahead of other countries of the region in doing so. In the 2000s, Orbán was actually showing more interest in Singapore’s authoritarian system, while Matolcsy seemed more of a Japan fan, according to a former foreign ministry official. Moreover, in 2000, Orban personally welcomed the Tibetan spiritual leader, the Dalai Lama, even tying a white shawl around his neck according to Buddhist traditions. According to a source close to him, although it was a highly anticommunist period for Orbán, he was never really interested in the issue of Tibet, so he had no difficulty changing course later.

One of the main goals of Orbán’s trip to Beijing and boosting Chinese relations was “to reduce dependence on Western markets. This intention was clearly based on the experience of the 2008 financial crisis,” explained China expert Ágnes Szunomár. In his statements, György Matolcsy himself – who became Minister for National Economy with the change of government, and later Governor of the Hungarian National Bank – assessed the economic crisis as a sign of the West’s decline, hoping to stabilize Hungary’s economy and reboot growth relying on eastern markets and capital inflow from China.

After climbing back to power in 2010, Orbán was soon engaged in tense negotiations with the European Commission and later with the International Monetary Fund (IMF). The two organizations tried to force Viktor Orbán to cut the budget deficit and pass unpopular austerity measures in order to deal with the huge debt accumulated during the governments of Medgyessy and Ferenc Gyurcsány. Several former Orbán government officials told Direkt36 about this period that they had to look for alternative sources of money, and floating the idea of a Chinese financial lifeline also helped reassure Western creditors.

The bombastic announcement was made during Wen Jiabao’s visit to Budapest in 2011. “We have received historic help from China because we need this reassurance to be able to go boldly forward on the economic restructuring we have set out on,” Viktor Orbán said at the press conference after his talks with China’s Premier. He announced that China would buy Hungarian government bonds, which, according to Orbán, would mean huge security and resolve the country’s financing in the medium term. Meanwhile, China’s Premier has even promised Orbán a special Chinese loan of one billion euros for development projects.

However, the idea of some kind of an enormous financial assistance from China did not have much basis in reality and the promises hardly turned into anything. According to Ágnes Szunomár, it is not typical for China to “directly enter the financing of a crisis-hit European country”. Although China provided significant money to the Greek state with the long-term lease of the port of Piraeus, this was not direct funding either – China rather just seized the opportunity. “In fact, both in this case and on several other occasions, it could only have been an assumption of the Hungarian side that the Chinese would “help us out”, but the Chinese probably never actually promised to do so,” Szunomár added. About the hopes for gigantic Chinese loans, Sándor Kusai, the Hungarian ambassador to Beijing between 2008 and 2014, said: whoever had seen a living Chinese knew that there was no such thing.

In the following years, it became even more obvious that the Hungarian state would not receive financing from China as expected, nor would large Chinese investments announced with Orbán’s ’Eastern Opening’ be made. The most important Chinese investments, the acquisition of chemical raw material manufacturing company Borsodchem by a Chinese group and the expansion of Huawei in Hungary, were decided well before 2010. Under the Orbán government, however, no really significant new deals were made for a long time. A former senior foreign ministry official commented on the shortfall in expected Chinese money and promises:

“It is their deliberate strategy to convince everyone that they are China’s key partners. We get the red carpet rolled out for us, we get all the high-level meetings, and it deceives us: we believe we are special indeed”.

II. Limits of the ‘Eastern Opening’

China’s ambassador to Budapest, the strict, soldierly Gao Jian was never seen as angry by her Hungarian counterparts as in the first days of September 2010. Gao was not even unsettled by the parliamentary visit of the Dalai Lama, which happened a few weeks later. “But she was terribly upset about the issue with the Chinese smugglers,” a former senior official of the Orbán government recalled.

On September 1, 2010, two Chinese citizens the United States suspected of spying and smuggling were arrested at Budapest Airport. They were taken to court immediately the morning after their arrest. By afternoon, their quick extradition to the United States was already decided by the court. “Meanwhile, neither the Chinese consul nor the Chinese ambassador were notified,” the former Orbán government official recalled what had sparked the anger of Ambassador Gao, who was described as a cunning and tough diplomat. “Relations with China have completely collapsed overnight,” the government source recalled. The ambassador was threatening with repercussions from Beijing.

Orbán had been in power for only a few months when the conflict between Budapest and Beijing erupted. The two Chinese, Hong Wei “Harry” Xian and Li “Lea” Li, tried to illegally obtain special computer parts (PROM memory modules) for China’s state-controlled aerospace technology corporation. The microchips were manufactured by BAE Systems, a British defense company and supplier of the U.S. military, and were banned from trading due to the U.S. arms embargo against the People’s Republic of China. These microchips, built to withstand cosmic radiation from outer space, are used in controlling ballistic missiles.

The two Chinese traveled to Budapest for negotiations with a distributor on how to circumvent the embargo finding an “alternative way of transportation”. However, the alleged distributor was in fact an undercover FBI agent. The Americans tried to lure the two Chinese into a country where their extradition could be rock solid, so they chose Hungary, which they considered a reliable ally. “The U.S. said they were real spies and convinced the Information Office (Hungary’s foreign intelligence) that this case was important. It was a fait accompli situation where it was evident that, as NATO members, we do not extradite spies to China,” explained a former senior foreign ministry official.

However, the new Orbán government was unaware of the details of the U.S.-Hungarian intelligence cooperation leading up to the arrest. They only realized its diplomatic risks after the scandal erupted, and the timing could not have been worse. “It was at this time that Viktor Orbán’s trip to the Shanghai World Expo in October 2010 was organized, and the case carried the threat of Beijing canceling his visit,” recalled a former senior government official.

Yet the conflict was resolved in a few weeks. The ambassador – who was herself a Chinese military intelligence officer, according to Hungarian government sources – smiled again at meetings, and Orbán was able to travel to the World Expo without any problems. It was not the Hungarian government that had found a solution, but the two protagonists of the story had reached some sort of agreement, a former Hungarian diplomat to Beijing recalled. “In reality, what happened was that the intelligence and counter-intelligence of two superpowers clashed in a third country, Hungary,” the source explained.

This was corroborated by Csaba Mester, the attorney who represented the two Chinese spies. “We fought against extradition relentlessly. Then suddenly my clients said: let’s leave it, let’s go on with the extradition as soon as possible. I coudn’t believe it,” the attorney recalled. The sharp change in course came shortly after a high-level Chinese visit to the U.S. “In my personal opinion, that was when they reached some kind of a deal,” he added.

According to the former diplomat to Beijing, “this case showed the possibilities and limits of Chinese influence in the Western alliance of which Hungary is part of.” On April 1, 2011, the two Chinese were loaded onto a plane bound for the United States, where they later pleaded guilty and were both sentenced to two years in prison.

As a result of the extradition case, the Orbán government became much more cautious and started consciously avoiding conflicts with China. According to a former senior foreign ministry official who also dealt with Chinese issues, the Orbán government does not dare and cannot side with China because of Hungary’s NATO membership, at least when it comes to hard security issues. “If there is a concrete, serious request, we are allied with NATO and the United States,” the former foreign ministry official said, who also added: “but if there is no unity or common position, if something is a gray area, we do what the Germans do.”

The Orbán government also follows the Germans partly because Chinese-Hungarian foreign trade actually takes place largely between China and Germany. “Audi engines and similar products account for 60 percent of Hungary’s exports to China, and the share of the Hungarian SME sector is very modest,” a former diplomat familiar with China explained. Engines produced in the Hungarian city of Győr, for example, are installed in cars in an Audi factory in northern China. It is spectacular how the German government has been avoiding conflicts with China for years: Chancellor Angela Merkel barely speaks out against human rights abuses so as not to hinder the prosperity of large German corporations in China.

A good example of Hungarian and German tactics is a conflict behind closed doors in early 2019, about which EU diplomats and Brussels officials gave details to Direkt36. A cyberespionage group called Red Apollo, or APT10, had been stealing technology secrets from virtually every major industry from America to Japan for years. Members of the Five Eyes intelligence alliance (comprised of Australia, Canada, New Zealand, the United Kingdom and the United States) have publicly blamed China for these attacks. The United Kingdom tried to persuade the European Union to do the same, as well as to deliver a démarche (a diplomatic protest note) before the EU-China summit on April 9, 2019. In addition, according to a diplomat of an EU country, condemning the attack would have laid the groundwork for future sanctions against China, which is why attributing the cyberespionage to the Chinese state seemed to be a significant measure. However, China has always vehemently denied that its intelligence services are involved in similar cyber attacks, so a joint EU response could have triggered Chinese retaliation.

In the preparatory meetings leading up to the EU-China summit, the United Kingdom gained support from, for example, the Netherlands, Poland and Estonia. These countries had all suffered Russian cyber attacks previously. Southern member states, which are more dependent on Chinese capital, however, have argued loudly that China’s anger should not be risked. At first, Hungary also explicitly opposed articulating China’s responsibility, but later it began to follow the more subtle strategy of the Germans. According to a diplomat of an EU country familiar with the details of this conflict, Germany did not have a position at one of the important meetings, did not comment on the debate, only sat out the session. Their strategy was that a proposal of this magnitude would surely not pass without the EU’s most influential member state. The EU and the United Kingdom, meanwhile, were also struggling with Brexit negotiations, so it was clear that without a quick decision, the diplomatic initiative against Chinese cyberespionage would run out of steam – as it did. By the end of March, the idea of a joint protest had been abandoned.

In addition to aligning with Germany’s position, the Hungarian government had other reasons not to worry too much about Chinese hackers. In Europe, “China is more engaged in economic and technological espionage, less in political spying, and that is why Hungary is not their main target. There is not much high-tech Hungarian innovation that can be stolen, the Chinese are not interested in the recipe of the Béres drops (popular immune system boosters),” explained Ferenc Katrein, a former counterintelligence officer and director of operations at Hungary’s Constitution Protection Office. This is also supported by the fact that APT10’s Chinese hackers had no Hungarian targets at that time, according to multiple diplomats of EU countries.

Meanwhile, Hungarian diplomacy is trying to win the goodwill of the Chinese in matters that seem to be spectacularly at odds with Western interests, but in reality, do not carry much significance. For example, Hungary vetoes and blocks joint EU statements condemning China at lower levels. However, each of these vetoes are actually on soft issues or issues over which the EU has no real leverage. Thus, for example, Hungary did not allow a statement to pass that would have criticized China in the South China Sea conflict – while the EU has neither military nor diplomatic influence over the far away region.

“Let’s be honest, all EU statements are a joke. These are moral declarations, and the Chinese know they have no consequences,” a former senior foreign ministry official explained, addig that these vetoes would never go against NATO’s true strategic interests. According to the former official, many people consider the Hungarian government to be pro-Chinese precisely because, while the Germans do business in silence, Hungarians praise China in roaring political statements.

However, not even this was enough to achieve a breakthrough so far. Not even the seemingly mutually beneficial deals are going smoothly. When he came to power in 2013, Chinese president Xi Jinping launched the Belt and Road Initiative to boost Chinese industry and increase China’s foreign influence. These huge investments in infrastructure are also called the New Silk Road. One of the projects under the initiative is the reconstruction of the Belgrade-Budapest railway line, which would transport Chinese goods from the port of Piraeus. Hungary became the very first EU member state to join the Belt and Road initiative. However, a problem soon emerged as China was insisting that its own companies be the main contractors for such constructions.

“To reach an agreement on this in a country where one group wins all similar public procurement, was extremely difficult. It’s bullshit that this project is so important politically to the Chinese. They do everything for money,” a former Hungarian diplomat to Beijing explained why the Hungarian project, which costs 1,9 billion euros, has been lagging behind schedule for many years. In the end, a Chinese-Hungarian consortium won the contract, with two Chinese state railway builders joining forces with a company of Lőrinc Mészáros, Viktor Orbán’s childhood friend and Hungary’s richest businessman. According to their deal, they both eventually get 50-50 percent of the business.

As a former senior foreign ministry official put it, this also shows that the ‘Eastern Opening’ eventually turned out to be just “ninja smokescreen designed to conceal Hungarian graft and corruption”. Hungary’s national economy hardly benefited from the pro-China turn in foreign policy, only business circles close to the government profited from it.

In addition to the railroad project, the source also listed the abundance of so-called national trade houses, the golden visa program, and last year’s ventilator purchases as such.

But the ever-closer Chinese-Hungarian relations have also brought to the fore a threat that the Hungarian state cannot completely ignore. Chinese spies, who are already circling Hungarian politicians, are making more work for Hungarian counterintelligence.

III. Great China’s Hungarian friends

The counterintelligence officers asked socialist MP István Ujhelyi if they could put something on his desk. Then they unboxed a special X-ray machine, a security screening device, and started scanning all the meticulously crafted daggers, colorful vases and porcelain sculptures decorating his office in the Hungarian parliament. Agents of the Constitution Protection Office (AH) were searching for covert listening devices. “I asked them to disassemble all the souvenirs I had received from the Chinese over the years,” recalled István Ujhelyi, who has one of the most extensive Chinese connections in Hungarian politics. He did not disclose the date of the secret service inspection, only that it happened “around 2013″. Other gifts sitting in his office were screened too. At that time, Ujhelyi was Deputy Speaker of the Hungarian National Assembly, so he was considered a state official and security officers paid more attention to him.

Ujhelyi was sent out of the room during the operation. He still doesn’t know till this day if there was a bug in his office. When finishing, However, the counterintelligence officers added that they would check in with him if they felt they needed to talk about something. They did return around 2014. “They indicated that I had a Chinese person visiting me in Parliament on several occasions who was problematic, and asked me not to keep in contact with that person anymore,” said Ujhelyi, adding that he followed these instructions. He refused to reveal further details about this Chinese acquaintance because he thought it might be detrimental to national security interests. Several former counterintelligence officers told Direkt36 they would ask for this when someone came in contact with a spy of a hostile foreign country. At that time, counterintelligence agents also questioned Ujhelyi about his frequent trips to China.

It is no coincidence that Hungarian security officers are monitoring Hungarians with high-level Chinese connections. Chinese espionage uses different, more subtle methods than European ones. The Chinese “do not trust others other than their own”, entrusting serious espionage tasks only to ethnic Chinese. In addition, “they are not recruiting classic agent networks in the West, rather white friends for the Great China,” a former senior Hungarian intelligence officer explained. Chinese intelligence then uses these ‘friends’ either to gather intelligence or to strengthen Chinese positions —tasks that recruited assets do — but this relationship is much looser, more informal compared to regular recruitment. Many times they are not even aware that they are being used by Chinese intelligence. It is also a typical method of the Chinese to just harmlessly cultivate a relationship for years, indebting people with favors, gigs, free trips to China, before they actually ask for something in return.

Ujhelyi fell in love with China around the turn of the millennium. He was trying to deepen Sino-Hungarian cooperation, mainly in the fields of culture, education and tourism, and later continued to do the same on a European level in Brussels as a Member of the European Parliament. “I brought the second Confucius Institute to Hungary, to the city of Szeged, with which we gave Chinese language skills to thousands of students. I lobbied for that with my own private connections,” he boasted. He later also lobbied for the opening of two more institutes in Pécs and Miskolc. ”Then came (senior Fidesz politician) Lajos Kósa with envy, and another had to be opened in Debrecen as well,” Ujhelyi said.

Since 2004, the Chinese government has been funding foreign expansions of Confucius Institutes promoting Chinese culture. More than a thousand of them have opened around the world, but in recent years, several countries started kicking them out. For example, a few weeks after the opening of the institute in Debrecen at the end of 2019, a Confucius Institute in Brussels was shut down. The reason: Belgian counterintelligence suspected the Institute’s head of spying and recruiting informants for China. In 2020, all Confucius Institutes in Sweden were banned after it was revealed that Chinese language teachers on Swedish campuses were actually spreading Beijing’s propaganda. A wave of closures began in the United States, where 71 institutions had already been closed (or ordered to shut down) by March this year and laws have been passed to restricts them because of national security considerations.

According to Ujhelyi, it is nonsense, and even Cold War era-like paranoia to think that Confucius Institutes spread propaganda and possibly provide cover for Chinese espionage. However, several sources previously involved in shaping Sino-Hungarian relations disagreed. They told Direkt36 that, just as everywhere else around the world, this is probably the case in Hungary too – but we still have to live with it. Former Ambassador to Beijing Sándor Kusai said that if a political decision has been made to develop Chinese relations, people with knowledge of Chinese language and culture are needed too. However, the Hungarian state could not provide conditions for training them – hence the need for Confucius Institutes.

“Cultural expansion plays an important role for China in advancing its political influence. There is a huge cultural divide that needs to be bridged first in order to successfuly take positions in Europe,” a former counterintelligence officer with Hungary’s AH explained.

According to the former officer, this is also the role of the Confucius Institutes, and therefore number one targets for China are Western academics, university professors, students, experts, and journalists. “Intellectuals are important to China, because they can facilitate the cultural expansion that will then create a favorable public opinion for huge projects like the Belt and Road. This is smart, because they know you’ve won half the battle if you conquered the hinterland,” the counterintelligence officer added.

In addition to Confucius Institutes, Shanghai’s Fudan University is also a prominent tool for this cultural expansion. The university, one of China’s elite higher education institutions, will open its very first European campus in Hungary in 2024. The project has been highlighted and praised even by Chinese President Xi Jinping himself. The campus is scheduled to operate with five to six thousand students and five hundred teachers.

“If Tsinghua University in Beijing is China’s Harvard, then Fudan University in Shanghai is China’s Yale, one of the best universities in the world,” Ambassador Kusai explained. However, Fudan is not simply a top university, but also an important recruitment pool for the Chinese state party. More than a quarter of faculty and students are certainly Chinese Communist Party members, according to a recently leaked party member database, also analyzed by Direkt36.

Source: Direkt36

In addition, the university’s Institute of International Studies has long been cooperating with China’s foreign intelligence, and in 2011, Fudan University even launched its own spy school. Then in 2019, references to ’freedom of thought’ and independence in academic research were deleted from Fudan University’s charter, replaced by pledges to follow the CCP’s leadership. Despite all this, according to the former Hungarian ambassador to Beijing, if Hungary wants to train China experts, it must accept the downsides too – just like with the Confucius Institutes. However, the Hungarian state must also ensure that security risks are mitigated, Ambassador Kusai carefully added.

But the man who is the main driving force behind the university’s expansion in Hungary does not see any risk at all. The Chinese Communist Party “did not influence free thinking and freedom of research in any way” at Fudan University, claimed Levente Horváth in an interview. As Chief Adviser to György Matolcsy, currently Governor of the Hungarian National Bank (MNB), Horváth is the official coordinator of Fudan’s expansion. In the interview, Horváth also added that Fudan will not bring its requirement of mandatory two-week military service to Budapest. According to him, “students think of it as a kind of summer camp anyway, many close friendships are made there”.

Horváth, now in his early thirties, speaks from personal experience. (His Chinese upbringing was detailed in an article on qubit.hu.) In addition to Ujhelyi, his example also shows how China-loving Hungarians both on the right and left are helping China to set footholds abroad. Horváth himself was studying at Fudan University thanks to a Chinese state scholarship, when the foreign ministry nominated him as Hungary’s Consul General to Shanghai. This combination was rather problematic: Horváth could not even get his agrément, ie official diplomatic approval, until he finished his China-funded studies, a former senior foreign ministry official claimed.

But according to previous practice, Horváth could not be in that diplomatic posting either because he married a fellow student, a Chinese national. Although Hungarian law does not prohibit diplomats from marrying someone from their host country, until 2010, Hungary’s counterintelligence typically saw this as a risk when conducting background checks for security clearances. Especially in the case of one-party states, where a foreign spouse can be extorted by the local intelligence services, either directly or through their family members. However, the Orbán government has ended this practice. Szilárd Kiss, a former Hungarian attaché to Moscow is a notorious example. His Russian life partner had ties to Russian intelligence, prompting the Hungarian diplomat to fail his background checks twice. Still, Kiss was allowed to remain in his position.

Horváth left his position as Consul General in Shanghai within a few years, and, following his brother’s lead, joined the Hungarian National Bank where he soon became a confidant of the governor. (His brother has been working for György Matolcsy for a long time, previously as a personal assistant, then chief of staff, and currently as one of the central bank’s directors). Levente Horváth is currently the only expert of the East Asia region around Matolcsy, he is in charge of managing Chinese projects, several sources familiar with the central bank said. Horváth not only has high-level personal ties to Fudan’s senior leadership from his university years. He also began helping Fudan receive resources from the Hungarian state while serving as vice president of the Chinese university’s alumni association. We reached out to Horváth multiple times but he declined to comment. „We are not commenting on rumors,” the central bank said in a reply.

“Within the Hungarian state, the Hungarian National Bank is of the most extremely pro-China stance, foreign minister Péter Szijjártó and Orbán only rank after them,” a China expert told Direkt36. And, according to the head of a state institution that keeps regular contacts with China, at lower levels of government, both in the foreign ministry and elsewhere, there is a widespread suspicion not only against China, but even against Hungarians who have studied there. “Others in the public administration share the same experience as we do. Those who have spent a lot of time in China are already more with them than with us,” the source said, adding, “we are consciously trying to keep these people away from us”.

However, an official who previously worked in the orbit of the central bank’s governor, offered a more nuanced explanation of the governor’s friendship with China. “Matolcsy was aware of the growing Chinese influence and was trying to be cautious. He also said once or twice that we should not be deceived by the Chinese, we should be careful with them,” the source recalled, adding that the central bank’s governor was indeed referring to Chinese espionage. However, all in all, Matolcsy still believes that since every country in the region wants to become a gateway to China, “if Hungary is not proactive, this role will be taken by others”, the source recalled.

IV. Citizen intelligence

The young Chinese woman arrived late at the event on Gellért Hill and attracted immediate attention. With her bright sneakers, jeans, and a flashy pink plastic purse, she stood out from the well-dressed audience of diplomats, politicians and government officials. On April 25, 2019, at the Institute for Foreign Affairs and Trade, speakers were talking about the challenges facing NATO.

With her mobile phone, she was constantly photographing guests of the Gellért Hill villa building – including a former Dutch defense minister, a retired German NATO lieutenant general, or U.S. President Donald Trump’s special envoy. One participant found the Chinese woman’s behavior strange, changed seats and sat behind her – and later described the whole scene to Direkt36. This participant also observed that she had attached those pictures to text reports of what had been said during the event, then sent everything on a Chinese messaging app to someone.

We were able to identify the woman, a Chinese university student, by obtaining the list of participants and browsing through photos taken at the event. According to one of her Hungarian university professors, the Chinese woman’s studies had absolutely nothing to do with defense or security issues. For a long time, she did not talk with her teacher about politics at all. But after a while, she revealed that there was no other way for her to study in the West, so she had to join the CCP. She also explained in an apologizing manner, that because of this, she must do things that might seem crazy to a European. Every day, for example, she had to watch a current communist propaganda video on her phone, telling her what to think about world events. Meanwhile, her mobile’s camera was monitoring if she was paying close attention to these ideological lectures. Although this was never discussed, her teacher believes this was also the reason why the Chinese woman carried out assignments like in the above-described situation. The professor has long noticed that she was constantly attending conferences that were not related to her field of study, but somehow always related to China.

”The Chinese are interested in us in many ways, but this is also true of other intelligence services,” said an official working for the Institute for Foreign Affairs and Trade, which is a Hungarian state institution under national security protection. AH’s former counterintelligence officer Ferenc Katrein said that Chinese intelligence employs plenty of Chinese students or businessmen coming to the West. “With their help, they can gather tiny crumbs of information because there are many tens of thousands of these people. They often report information that first seem insignificant, but because it arrives in large quantities, when linking them together at the Beijing headquarters, it can add up to something meaningful,” Katrein explained the Chinese method. Seemingly pointless pictures taken at events also have a well-known function: this is the way to prove to supervisors that a report was indeed written on the spot at a particular venue or event.

”All organizations and citizens shall support, assist, and cooperate with national intelligence efforts in accordance with law, and shall protect national intelligence work secrets they are aware of,” states China’s new National Intelligence Law, which was passed in 2017. However, according to a Hungarian intelligence expert, all that happened was that with the development of rule of law, China only codified a practice that has always existed.

“This is the so-called people’s intelligence (renmin qingbao), or citizen intelligence. Every Chinese who goes abroad and then comes into contact with political, economic, technological or military institutions, whether a student, a friend or a spouse, certainly submits reports,” the intelligence expert explained.

This does not mean at all that all Chinese arriving in Europe would be spies. However, compared to democracies, China’s intelligence services can much more easily persuade their own citizens to cooperate when they seem to have access to more intriguing information. This cooperation is typically motivated by patriotic sentiments or financial gains – but often by pressure or extortion, sometimes directed at family members and loved ones left in China.

Another feature of Chinese citizen intelligence is that security agencies are outsourcing more simple and less sensitive tasks. A good example of this was described by a Hungarian student of Corvinus University Budapest who had been previously living in China. After he developed a closer relationship with a female Chinese student, “she casually mentioned to me that, by the way, she had just found a great opportunity to make money: she had to translate phone conversations,” the Hungarian student recalled. The Chinese girl also revealed the details to him. The tasks were assigned from Beijing and the audio material – conversations in English on totally mixed topics – were sent on the Chinese WeChat mobile app. First, she had to transcribe them word by word in English, and then translate into Mandarin. The audio footages featured foreigners living in China talking on the phone.

“She didn’t even feel that this was spying or a violation of the privacy of others. The girl was not a recruited agent, she considered it a simple student job, and this is how it was advertised anyway. She was just talking about her job to me innocently, naively, thinking that it was completely normal. She also said that a lot of English-speaking students are doing the same job,” the Hungarian student added. Most of all, the Chinese girl only complained that she could barely understand Australian accent sometimes.

“From 2016-17, the Chinese intelligence service has clearly caught up with the Russians, and their presence has become very serious in Hungary in recent years,” said Zsolt Molnár, member of the Hungarian parliament’s National Security Committee. He was committee chairman between 2010-2018 and has been closely following the work of Hungarian security services for more than a decade. According to him, one of the main reasons for the rise of Chinese espionage is that China can utilize its growing number of Chinese citizens and companies in Hungary for intelligence tasks.

The influx of Chinese university students began under the Orbán government. This was only partly due to a Hungarian state scholarship program, which was gradually extended to more and more Chinese students to support Orbán’s ’Eastern Opening’ policy. The main reason was the government underfunding of higher education – Hungarian universities themselves were forced to lure in Chinese students paying full tuition. According to Hungarian Central Statistical Office data, back in 2013, there were only 446 Chinese students in Hungary, which increased to 2,776 by 2019 – meaning that, other than Germany, most foreign students came from the People’s Republic of China.

For a similar reason, Minister of Interior Sándor Pintér and the Constitution Protection Office, under his supervision, were also concerned about Hungary’s ’golden visa’ scheme. Launched in 2012, the so-called Hungarian Residency Bond Program posed the risk of letting in people with ties to foreign intelligence and organized crime. Over the years, approx. twenty thousand foreign citizens bought golden visas, which provided them with Hungarian residency permits and Schengen zone visas. More than eighty percent of them – nearly sixteen thousand – arrived from China. Meanwhile, Hungarian counterintelligence was only given thirty days to conduct a background check on each individual bond buyer. According to former AH officer Ferenc Katrein, they considered this an impossible task and an extremely risky situation. Katrein was especially worried about the possible deployment of Chinese and Russian ’illegals’ or sleeper agents. (Direkt36, 444.hu, and Novaya Gazeta later found out that even bond buyers such as Syrian dictator Bashar al-Assad’s moneyman and Russian spy chief Sergey Naryshkin’s son slipped through the Hungarian screenings.)

AH has observed another strange phenomenon. Chinese, and to a lesser extent, Russian nationals started a buying frenzy in Budapest’s real estate market. In 2019, for example, nearly three thousand properties in the capital were purchased by foreigners, according to government records – more than half of them were Chinese citizens. Before the launch of the residency bond program, the proportion of Chinese property buyers was just over 10 percent. “There is a traceable pattern: that real estate is often bought at unrealistically high prices in downtown Budapest,” a source familiar with the work of the parliament’s National Security Committee recalled one of AH’s previous annual reports. According to Hungarian counterintelligence, it cannot be ruled out that these strange real estate acquisitions in downtown Budapest (V., VI. and VII. districts) have Chinese state source, i.e. the transactions are related to Chinese intelligence. However, the potentially illegal purpose of these acquisitions has not been discussed.

In the end of 2020, Hungary’s civilian and military counterintelligence once again held their annual reports behind closed doors. According to sources familiar with those meetings, security agency heads spoke of increasing Chinese spy activity, Chinese intelligence offensive in Brussels and Budapest, but detailed no specific operations. By then, however, some of China’s operations had literally taken place on the streets of Budapest.

V. The price of friendship

The American international relations expert was already accustomed to being surveilled by Chinese intelligence. They not only tried to hack his devices. From time to time, unknown Asians appeared in front of his home and tried to take photographs peeping through his windows. Using his high-level connections in Washington DC, the expert has been lobbying to hold Beijing accountable for the communist regime’s human rights abuses. He was well aware that this would provoke the wrath of Chinese intelligence. However, the expert was still surprised that they also started following him during his visit to Budapest in January 2018.

He had just entered an elegant patisserie on Vörösmarty Square, when an Asian man sat down at a nearby table and began photographing him with a mobile phone. The same thing happened again at a fancy wine bar at Szent István Square, an elegant bistro in Buda, and everywhere else where he went. “This was completely new, it hadn’t happened in Hungary before,” a source close to the American man (who had several previous visits to Hungary) told Direkt36.

In Budapest, the American had meetings with, among others, Hungarian government officials and other influential Fidesz-linked people. From the behavior of those watching him, it seemed that they were trying to document who the man was meeting for coffee or lunch, and what they were talking about. The American was upset and started to take pictures of those following him too, typically prompting his Asian surveillants to stop photographing. The American reported what happened to him and shared the photos he took with the Federal Bureau of Investigation, which also deals with counter-espionage. The FBI’s feedback confirmed that it was no accident that the international relations expert stumbled upon Asian tourists everywhere: it was indeed the Chinese state surveilling him.

The same thing happened on the man’s next trip to Budapest in 2019. “Hungary is a typical third country, a scene of intelligence operations, where you can act with impunity, like in Switzerland or Austria. In Hungary, China is mostly wrestling with the United States,” a Hungarian intelligence expert said. However, the same technique has been used elsewhere in the region by the Chinese. In late 2018, the head of Czech intelligence was followed and surveilled just as overtly on the streets of Prague after his agency issued a warning about the national security risks of Chinese tech giant Huawei.

It soon became clear that Chinese intelligence was collecting information on Hungary’s leadership too, even about some openly pro-China politicians. The database, compiled by a Chinese company called Shenzhen Zhenhua Data Information Technology, was leaked in September 2020. It includes data on 3 million people and organizations, from America through Europe to Australia. There are 710 Hungarian names on the list, including several well-known members and relatives of Hungary’s political and economic elite, such as the children of Viktor Orbán or former mayor of Budapest István Tarlós. “My child isn’t even present on Facebook. They probably hoped to get information about me indirectly through phone and e-mail, in addition to social media profiles,” Tarlós told Direkt36. He currently works as a prime ministerial commissioner of Orbán.

Although Zhenhua Data is a private company, it is also affiliated with the Chinese government and the People’s Liberation Army. On October 27, 2020, at a closed meeting of the National Security Committee, KNBSZ, Hungary’s military secret service confirmed that the commissioning of the database is linked to Chinese intelligence, a source with knowledge of the committee’s work told Direkt36. Heads of the KNBSZ also talked about the fact that this kind of mass data collection, gathered from online open sources and often with the help of artificial intelligence, has been perfected and routinely used by both China and the United States. They also said that one of the countries of the Five Eyes intelligence alliance may have been behind obtaining and leaking the Chinese database: that is, it could be another episode of American-Chinese spy games.

From 2018, Hungary and the Central and Eastern European region became a collision zone between the two great powers. It was then that the United States turned its crosshair on Huawei, the Chinese frontrunner in 5G technology. The company was accused of collaborating with Chinese secret services, one of its executives – the company founder’s daughter – was detained in Canada at U.S. request, while the U.S. government also began persuading its allies to ban Huawei devices from their own 5G mobil networks. The spectacular push was even given its own name: Clean Network Initiative.

By 2021, U.S. pressure achieved results in all EU countries, as majority of member state have shown some kind of openness to restrict Chinese 5G equipment – with the spectacular exception of Hungary. By then, Huawei had already developed an intimate relationship with the Hungarian government and won state contracts to provide equipment to Hungary’s critical infrastructure. Huawei also established its largest production capacity outside of China in Hungary – supplying the region with 5G base stations from there –, and even opened a new regional research and development center in Budapest last year. “Huawei can no doubt participate in the rollout of domestic 5G networks,” Foreign Minister Péter Szijjártó confirmed last year while thanking the Chinese company for its donations of surgical mask and other protective equipment.

Yet Hungarian secret services were cautious of Huawei well before the U.S. started its public pressure campaign against the company. As early as the first half of the 2010s, “at the time of the Eastern Opening, even the most pro-Orbán officers of the Special Service for National Security were particularly concerned about China’s growing influence,” said a then-executive of a large telecommunications company. This executive regularly consulted with the Special Service (the Hungarian NSA), which was tasked with cybersecurity and the technological aspects of counterintelligence. For example, Vodafone has particularly concerned security officers of the Special Service as “Huawei was embedded so deeply in them,” according to the source. However, they never mentioned any security breaches. Later, on February 26, 2019, in a meeting with the National Security Committee on Huawei, heads of Hungarian secret services also fell short of detailing risks of the company’s presence in Hungary. However, they presented U.S. measures against Huawei “in a manner that was loyal to NATO allies,” a source familiar with the contents of the meeting said at the time.

These unspecified concerns did not sound convincing to the Hungarian government. In a statement to Direkt36, the Ministry of Foreign Affairs and Trade claimed that they do not possess any information proving that Huawei poses a risk. “When we met with government officials, they openly said that they were under a lot of pressure from the U.S. side. Szijjártó understands the issue and he is fair. Hungarian officials do not make irresponsible promises, but they keep their words,” said Mariann Gecse, head of government relations and communications at Huawei’s Hungarian subsidiary. According to her, Péter Szijjártó’s oft-repeated claim that Hungary’s government does not discriminate against companies on the basis of their nationality was extremely important. Companies in China have listened to this message and it made an impact.

Indeed, the Orbán government kept its word and did not prevent the two (out of three) Hungarian mobile operators from picking Chinese suppliers for their rollout of 5G networks. Czech-Hungarian-owned Telenor went with Chinese state-owned ZTE, while Vodafone contracted its longtime supplier, Huawei – although the British company does not disclose this publicly. U.S. lobbying efforts have achieved so much that Huawei was unable to win new customers in the region, such as the German-owned Magyar Telekom. Otherwise, one hundred percent of Hungarian 5G networks would have run on Chinese equipment.

Paradoxically, the fact that the relationship between the Hungarian government and China has become so close is due more to the Trump administration than to Beijing.

“The Americans have forced the Central European region to make a statement, to take a stand one way or another. So Hungary sided with China, because it is becoming its largest foreign trade partner. Last year, the largest new foreign investments came to Hungary from China. Chinese capital has now started to believe that they will certainly not be kicked out from here, so they can make long term plans,” explained Mariann Gecse about the consequences of the war around 5G networks.

However, good relations with China come with a price tag, just like being part of the Western alliance. And the Orbán government has certainly faced a reckoning.

A few days after the daughter of Huawei’s founder was detained at U.S. request in Canada in December 2018, China also arrested two Canadian citizens on suspicion of espionage. The two countries mutually accused each other of making illegal and arbitrary arrests, and Canadian Prime Minister Justin Trudeau said China simply attempts to force a prisoner swap. However, the Hungarian government also got involved in the case. It turned out that one of the two Canadians, Michael Kovrig, an ex-diplomat who later worked for the International Crisis Group, was a Canadian-Hungarian dual citizen.

The man was walking the streets of Beijing one Monday night when Chinese police, without any precedent, approached him and hauld him away. Yet a few weeks earlier, on September 25, 2018, Michael was still meeting with his Hungarian friends in Budapest’s party district. “Let’s go to the Szimpla Kert!,” he suggested to one of his old acquaintances. After some wandering around, they finally ended up in a restaurant near Király Street instead of the well-known ruin bar.

Michael Kovrig’s family fled Hungary from the communist dictatorship. Born in Canada, he moved back to Budapest for some years in the 1990s, where he worked as an English teacher and journalist for Budapest Week, and also sang in a punk rock band called Bankrupt. His grandfather, János Kovrig, also traveled China as a journalist in the 1930s, and was later arrested and interned in a labour camp during the communist takeover of Hungary in 1946. Michael’s father, Bence (Bennett) Kovrig, became a well-known historian – it was under his influence that Michael discovered his Hungarian roots, learned Hungarian and acquired citizenship, his Bankrupt bandmate Balázs Sarkadi told Direkt36.

As protecting its own citizens is one of the most basic responsibilities of a state, Canada and Hungary consulted each other on Kovrig’s case, an official familiar with the matter from the Canadian side told Direkt36. According to the source, foreign minister Szijjártó assured the Canadian government of his support and claimed he was personally following Kovrig’s case. At that time, Hungary had several high-level diplomatic meetings with the Chinese, and Szijjártó’s colleagues claimed that the Kovrig issue was always included in the preparatory briefing materials – however, it is not known whether they were actually raising the issue at these meetings with the Chinese.

Michael Kovrig is “considered by the Chinese authorities to be exclusively a Canadian citizen,” Hungary’s foreign ministry replied to our request. According to the ministry, this made it impossible to “conduct a Hungarian advocacy process.” Based on their response, Hungary treated Kovrig’s arrest as plain consular matter. Global Affairs Canada spokesperson Christelle Chartrand responded to our questions by saying that they cannot comment on confidential diplomatic discussions, also adding that “Canada is grateful to everyone who has also expressed concern about China’s actions”.

However, the Orbán government has never once expressed anything in public about Kovrig. In addition to an EU joint statement, several EU member states also demanded the immediate release of the ex-diplomat separately. Hungary’s government, however, remained silent. Later in February 2021, Canada brought together a coalition of 58 countries condemning the practice of hostage diplomacy because of Kovrig’s case. The only EU member state not listed among the participants was Hungary. According to Hungary’s foreign ministry, they joined as an “EU member state” – the statement is indeed supported by the European Union as such, but all other EU member states have endorsed the initiative on their own behalf as well. Kovrig’s employer, the International Crisis Group, told us that they have no information regarding Hungary’s involvement in the case.

Historian Mátyás Mervay is researching the history of the Kovrig family as well as other Hungarians with Chinese ties. According to him, Michael Kovrig, who has been sitting in a heavily-guarded Chinese prison for more than two years, has already been imprisoned longer than his grandfather was in a communist internment camp.