Brussels is investigating whether China has provided unfair subsidies to BYD’s electric car factory in Hungary, taking an extremely sensitive step against the deepening economic relations between Beijing and Viktor Orbán.

The European Commission is in the preparatory phase of a foreign subsidy investigation into the BYD plant, which will further increase trade tensions with Beijing.

If Brussels finds that the Chinese company has received unfair state aid, it could force it to sell assets, reduce capacity, repay the subsidy and possibly pay fines for non-compliance.

Viktor Orbán has long been at odds with Brussels, especially over sanctions against Russia and the war in Ukraine. In recent months, he has taken an increasingly sharp stance against the EU, which has been emboldened by the election of his ideological ally, Donald Trump, in the United States. Viktor Orbán is expected to veto increased military support for Ukraine at the summit of EU leaders in Brussels on Thursday.

Orbán, who hosted President Xi in Budapest last year, has managed to attract a quarter of China’s investment flowing to Europe in recent years. BYD’s investment in Szeged in southern Hungary is expected to reach 4 billion euros and could create up to 10 thousand jobs.

EU officials criticize the factory as being built with Chinese labor and using mainly imported components, including batteries, which creates little economic value for the union.

Several Chinese battery manufacturing companies are building factories in the EU, including CATL, which is building its largest European plant in Eastern Hungary at a cost of more than 7 billion euros.

Translated and edited by L. Earth