A thriving Vietnam prepares to join WTO

October 27, 2006

International Herald Tribune


WEDNESDAY, OCTOBER 25, 2006

HO CHI MINH CITY Nearly four decades ago, South Vietnamese leaders mapped out plans in the presidential palace here in what used to be known as Saigon. When they lost, the palace became the base for the Ho Chi Minh City People’s Committee to impose tight Communist control.

Last month, it was the scene for a very different gathering: a board meeting of the Hongkong & Shanghai Banking Corp. The directors, drawn from HSBC’s sprawling Asia operations into the palace’s cabinet meeting room, discussed the opening of Vietnam’s economy and its even greater potential.

In three decades, Vietnam has gone from war to communism to capitalism to become the second-fastest growing economy in Asia.

It is the latest Asian economic tiger to merit a comparison with China, the only economy it trails. Vietnam’s economic speed has it passing Thailand, Malaysia, Taiwan, South Korea and even India, its closest rival over the past five years, although India moved slightly ahead in the first half of this year.

“I think they are the next China – it’s not the scale of China, but it’s a significant economy,” said Michael Smith, president and chief executive of Hongkong & Shanghai Banking.

After more than a decade of talks, trade negotiators from around the world are preparing to conclude on Wednesday and Thursday a comprehensive agreement for Vietnam to join the World Trade Organization. President George W. Bush, President Hu Jintao of China, President Vladimir Putin of Russia and other heads of state are all scheduled to come to Hanoi in mid-November for a summit meeting of the Asia-Pacific Economic Cooperation forum.

For Vietnam, the meeting is its coming-out party, as critical to the country’s pride as the 2008 Beijing Olympics are for China.

Vietnam now produces and consumes more cement than France, its former colonial ruler. Its exports to the United States are rising even faster than China’s, although from a much lower base. The Ho Chi Minh stock index, along with its counterpart in Hanoi, together have nearly doubled this year, and Vietnam has suddenly become the talk of investment bankers and investors across Asia.

But with such growth have come controversy and problems, both here and in the United States. Republicans in the U.S. Congress are divided over a coming vote right after the midterm elections: It would grant permanent, full trade relations to Vietnam, particularly when it sells to America almost nine times as much as it buys.

Corporate America is divided over a Bush administration initiative in September to win votes for permanent trade relations with Vietnam from U.S. senators representing states traditionally reliant on textiles. Vietnamese officials are furious with the United States for what they see as a last-minute, protectionist attempt to limit the exports of Vietnam’s booming garment industry.

In Vietnam itself, nearly double-digit growth is starting to produce the same shortages of skilled labor felt in India and China. Executives at multinationals like Lafarge of France and Prudential of Britain say that salaries for locally hired accountants, human relations managers and other professionals are soaring by 30 percent to 50 percent a year – and that is only if such employees can be found at all.

Many educated Vietnamese now are like Ha Nguyen, a 34-year-old chemical engineer who is on his third job in three years, having received big raises each time he changed companies.

“Right now, it’s easy in Vietnam to find a job,” he said, pausing while doing a chemical analysis of cement quality at a corporate laboratory here.

Roads and ports in Vietnam are increasingly choked with cars and ships, with congestion that is worse than China’s but not yet as bad as India’s. Chronic corruption has slowed the construction of new infrastructure; the government has put the brakes on highway construction across northern Vietnam this year after uncovering a graft scandal that has led to resignations and detentions all the way to the top of the Transport Ministry.

Balanced against these problems is a government that, like China’s, has resolutely embraced capitalism after becoming disillusioned with the widespread poverty and even hunger that accompanied tight state control of the economy.

Economic liberalization policies, known in Vietnam as Doi Moi, have been pursued in earnest since the early 1990s, after poor harvests and economic mismanagement left millions facing malnutrition in 1990.

The architects of Doi Moi have been a handful of economists like Le Dang Doanh, a top adviser to the government and the Communist Party of Vietnam who studied in the former East Germany and the Soviet Union but became deeply disillusioned with the corruption and inefficiency of state-owned industries.

Like their counterparts pushing for change in China, officials like Doanh insist that there is no turning back.

“The reform is definitely irreversible – any attempt to come back to a centrally planned economy, to overplay the state sector, is economically irrational, inefficient and psychologically is counterproductive,” Doanh said.

The Finance Ministry has just produced a draft personal taxation law, expected to be approved by January, that offers more tax breaks for the wealthy than the United States does.

In some ways, Vietnam is even more pro-business than China. Reluctant to anger city dwellers, state-owned power companies in China minimize blackouts in residential areas but cut off power to factories up to three days a week, forcing them to run on costly diesel generators.

Vietnam takes the opposite course. Takashima Masayuki, general director of a Japanese-owned factory that makes shirts and jackets in Bien Hoa City, said that the factory did not even have a generator because it is located in an industrial zone and the authorities never allow the power to go off. By contrast, residents in nearby Ho Chi Minh City said that they have brief power outages as often as twice a day.

Like China and India, Vietnam has benefited enormously from the return home of a diaspora of people who fled the country when economic conditions here were much more difficult. Overseas Vietnamese, known as the Viet Kieu, have learned English, gained entrepreneurial experience and acquired technical skills in the West and are now returning home to build businesses.

Phu Than, Intel’s country manager for Vietnam and Indochina, was 14 years old when he was evacuated from the U.S. Embassy in the last days before the fall of Saigon, leaving by helicopter with his mother, an employee of the former American consulate in Danang. He earned an electrical engineering degree from the University of California at Davis, joined Intel and now oversees the largest foreign investment in Vietnam, the construction of a semiconductor assembly and test factory that will cost $300 million for the first phase and another $300 million for a likely expansion later.

Intel already has two similar factories in China. But the company decided to put the next factory in Vietnam to spread out its investment across more markets. It joins Taiwan manufacturers of personal computer components that are also starting to move to Vietnam; Taiwan companies are the biggest foreign investors in Vietnam, followed by businesses in Singapore.

Three-fifths of the country’s 84 million people are under the age of 27. And with a policy of limiting families to two children instead of China’s one, Vietnam will continue for many years to have a large proportion of low-skilled workers, like Nguyen Thi Hong, 30, who look for work by riding to factories each morning on their rusty bicycles.

Hong said she and her husband, a mechanic who has already found work here, had left their 1-year-old son with her husband’s parents in their home town in central Vietnam.

Vietnam has reduced the percentage of its people living in abject poverty – less than $1 a day – to 8 percent from 51 percent in 1990, a greater improvement than either China or India. But few of them can yet afford to eat American beef or fly in Boeing jets.

Vietnam’s trade surplus with the United States has soared; it exported $5.56 billion in goods to the U.S. market during the first eight months of this year and imported only $625.9 million.

Antidumping duties are an emotional issue in Vietnam, after the United States imposed them on Vietnamese catfish exports three years ago and the European Union recently imposed them on Vietnamese and Chinese shoe exports. Vietnamese officials warn that antidumping cases could hurt the regulatory environment for American businesses and cause layoffs at garment factories, where most of the workers are low-income women.

“These people suffered from the war a lot already, and we would not want them to suffer again,” said Nguyen Anh Tuan, deputy director of Vietnam’s Foreign Investment Agency.

But talk to garment factory workers in Vietnam these days and they are optimistic that their children will have better lives than they. Nguyen Thi Thu Hoai, a 28-year-old worker, paused while folding green Nike jackets in a state-owned factory in central Ho Chi Minh City.

Recalling her poverty-stricken upbringing, she smiled as she spoke of her 2-year-old son; she has already bought a tiny Prudential life insurance policy for him that includes a savings fund for educational expenses.

“My parents were very poor, they couldn’t give me a good education,” she said. “But I will be able to give my son a good education so he will have more opportunities.”

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