US embassy cable - 04HOCHIMINHCITY1270

UNCLAS SECTION 01 OF 02 HO CHI MINH CITY 001270 
 
SIPDIS 
 
SENSITIVE 
 
 
E.O. 12958: N/A 
TAGS: ECON, PGOV, ETRD, EINV, SOCI, VM, ASEAN, LABOR 
SUBJECT: DANANG - WAITING FOR INFRASTRUCTURE INVESTMENT TO PAY OFF 
 
REF:  (A) HCMC 1240, (B) HCMC 1238 
 
1. (SBU) SUMMARY:  A Consulate visit to Danang led by the CG 
highlighted the city's eagerness to serve as a gateway to Central 
Vietnam and mainland Southeast Asia.  City leaders have boosted 
infrastructure investment, developing roads and a deep-sea port; 
now they are hoping their efforts will pay off in the form of 
increased trade and foreign direct investment.  While Danang has 
active academic and NGO communities, it seems to lack some of the 
entrepreneurial spirit of Ho Chi Minh City.  In addition to 
promoting Danang as an entry point to the region, authorities and 
developers have visions of developing the Danang and Quang Nam 
province seaside (the famed China Beach) into a resort mecca the 
likes of Phuket, Thailand.    Consular and religious affairs 
issues are reported in reftels.  END SUMMARY. 
 
DANANG AS A GATEWAY TO MAINLAND SOUTHEAST ASIA 
 
2. (U) A ConGen HCMC team, including the Consul General, PolOff, 
EconOff and a ConOff, visited Danang September 29-October 1. 
First Vice Chairman of the People's Committee, Tran Van Minh, 
explained that Danang is in a unique position to serve as an 
economic gateway to Central Vietnam and mainland Southeast Asia 
through its deep-water port and proximity to the East-West 
Corridor, a highway that runs from Quang Tri, Vietnam, just north 
of Danang, through Laos and Thailand to Mawlamyine port in Burma. 
He said the Corridor is complete except for a bridge over the 
Mekong River in Laos that is expected to open in early 2006. 
(NOTE:  In addition, the largest tunnel in Southeast Asia, Hai Van 
tunnel, is scheduled to open at the end of 2004.  This 6km tunnel 
will shorten the old 20km route through the Hai Van pass between 
Danang and the East-West Corridor.  END NOTE.)  Minh noted that 
land-locked Laos already relies heavily on Danang as a transit 
point for its exports and imports.  Laos exports wood and gypsum 
through Danang and imports cement, iron and fuel.  Danang leaders 
hope its connection to the East-West Corridor will make it a focal 
point for increased Vietnamese exports of agricultural goods, 
seafood and coffee to Laos, Thailand and Burma.  Danang's local 
government also hopes to draw Thai tourists to the area. 
 
3. (SBU) According to Vice Chairman Minh, city fathers recognized 
the need to develop Danang's infrastructure as a means of 
attracting increased trade and investment to Vietnam.  They 
convinced the central government to allow Danang to keep 95 
percent of its tax revenues from 2000 to 2005 to fund 
infrastructure development, including roads, bridges, the port and 
housing.  After 2005, this arrangement will be phased out over 
time, with Danang keeping a decreasing portion of its revenues. 
According to Danang Department of Planning and Investment (DPI) 
Vice Director Lam Quang Minh, Hanoi agreed - "after quite a fight" 
-- to the unusual arrangement as a stopgap measure because there 
were no central government funds available to support Danang's 
infrastructure development ambitions. 
 
4. (U) Now that most of the infrastructure development is 
complete, Danang is waiting to reap the benefits.  Minh noted 
Danang's potential as a location to add value to Southeast Asian 
exports, e.g. wood processing.  He also highlighted Danang's plans 
to attract tourists, pointing to Danang's beaches and its 
proximity to World Heritage sites like Hue and Hoi An as reasons 
to think tourism can be big business in Danang. 
 
5. (U) At Danang's Tien Sa Port, Vice Director Nguyen Xuan Dung 
noted that while the port is the third-largest in Vietnam in terms 
of freight throughput after Ho Chi Minh City and Haiphong, Tien Sa 
Port is the country's deepest port, capable of handling ships up 
to 30,000 deadweight tons (DWT).  Currently the relatively low 
volume of cargo transiting the port (2.4 million tons to date in 
2004) is both a cause and a result of slightly higher total costs 
and longer waiting time for cargo shipped through Danang.  While 
Danang's port charges are lower than those in HCMC and Haiphong, 
cargo often must wait to depart Tien Sa Port until there is enough 
cargo to fill a ship.  Along with other Danang leaders, Vice 
Director Dung hopes the completion of the East-West Corridor and 
the installation of two gantry cranes for container cargo will 
bring a boom of business to the port by raising cargo volumes and, 
consequently, reducing costs.  Dung also cited the location's 
potential as a port of call for cruise ships and other visiting 
vessels. A 2,000-passenger Star Cruises ship calls annually in 
Danang, and the USS Curtis Wilbur's visit in July was the first 
call by a foreign military ship to Danang in 15 years. 
 
6.  (SBU) A call to the Danang branch of the Vietnam Chamber of 
Commerce and Industry (VCCI) highlighted Danang's deficiencies in 
entrepreneurial initiative.  VCCI's Vice Director, Nguyen Cuong, 
indicated a desire to improve Danang's competitiveness, but 
lamented a lack of access to information on how to go about doing 
this.  Cuong spent most of the meeting explaining why Danang 
business was not moving faster, but had no ideas or programs to 
put forward.  He requested U.S. assistance in acquiring more 
information about the U.S. market and in aiding Danang to promote 
itself to U.S. businesses. 
A TOURISM MASTER PLAN 
 
7. (U) DPI Vice Director Minh outlined the city's tourism master 
plan, which calls for the development of approximately 24km of 
coastline - which includes the former U.S. R and R point of China 
Beach - into high-end beach resorts.  This ambitious plan includes 
creating a large lagoon, adapting a former U.S. military airstrip 
into a helipad and converting land behind the resorts into 
shopping and office space.  Vice Director Minh assured the Consul 
General that authorities are taking into consideration the 
potential for boom and bust in their tourism planning, but did not 
specify how they will adjust. 
 
8. (SBU) The ConGen team also met with Rick Mayo-Smith of 
Indochina Capital, an American financial services firm based in 
Southeast Asia, and Alfonso DeMatteis of Delta Equipment and 
Construction Company, a U.S. construction management company based 
in Vietnam that has overseen the construction of the U.S. 
Consulate in HCMC and other projects.  Indochina Capital, Delta 
Construction and other partners are developing a five-star resort 
at the southern end of the beach in neighboring Quang Nam 
province, near Hoi An.  The partnership is selling elegant 3- 
bedroom beachside villas on a 31-hectare section of the beach for 
$1 million.  The hotel that will be part of the resort will rent 
rooms for $200-300 a night.  Mayo-Smith and DeMatteis hope their 
resort and the greater Danang resort area will rival the resort of 
Phuket, Thailand.  DeMatteis told us that although all beachfront 
property from Marble Mountain near Danang to Hoi An has been 
leased for future tourist ventures.  One beach resort development 
site near DeMatteis' site was foundering and its Viet Kieu owner 
was seeking to unload the lion's share of his beachfront property 
to other investors. 
 
EDUCATION: DEVELOPING A SKILLED WORKFORCE 
 
9. (SBU) During a visit to Danang University, the ConGen team met 
with university staff and student leaders.  The university has 
more than 34,000 students, many studying engineering and 
economics.  According to the rector, most students stay in Danang 
after graduation, which means the city is developing a skilled 
workforce that could prove attractive to investors.  However, 
others in the city told us that Danang still has a hard time 
competing for talent with the higher paying and livelier HCMC. 
 
10.  (U) While at the university, ConOff gave a briefing on 
student visa procedures to a packed house of more than 100 
students and parents.  The majority of students were interested in 
advanced study in the U.S. at the master's or Ph.D. level, 
contrary to the typical Vietnamese student visa applicant, who 
wishes to go to the U.S. to study English or take classes at a 
community college. 
 
NGOS IN DANANG:  A MODEL FOR OTHER PROVINCES? 
 
11. (SBU) The ConGen team visited several NGOs that are providing 
assistance to street children and the handicapped, as well as 
infrastructure support to schools, hospitals and medical clinics 
in Danang and Central Vietnam.  All the NGOs reported receiving 
strong support from the Danang government.  They are allowed to 
operate independently, face little political pressure and have the 
power to turn down projects or beneficiaries proposed by 
government agencies.  One NGO, East Meets West, has been allowed, 
after a lengthy debate with the local government, to provide 
direct aid via turnkey projects without having to go through the 
government.  East Meets West has also had success with educational 
projects that aid ethnic minorities in rural areas in Quang Nam 
province near the Central Highlands province of Kon Tum. 
COMMENT 
 
12. (SBU) Danang has many strengths - well developed but still 
underused infrastructure, an increasingly educated workforce and a 
strong NGO community.  The city's political and business 
leadership is hoping that these strengths will attract increased 
trade and investment.  They clearly hope that the East-West 
Corridor and tourism can provide the boost to ignite more rapid 
growth.  However, Danang, no matter how beautiful, is not Phuket. 
Moreover, city leaders seem not to understand the need to be more 
proactive in reaching out to both foreign and domestic investors 
to convince them that Danang is now open for business. 
 
WINNICK