US embassy cable - 05HOCHIMINHCITY516

UNCLAS SECTION 01 OF 03 HO CHI MINH CITY 000516 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: PGOV, PREL, ECON, SOCI, EAID, PINR, OVIP, VM, WTO, SOE, LABOR, IPROP 
SUBJECT: THE DEPUTY SECRETARY'S VISIT TO HCMC:  CHALLENGES AND 
OPPORTUNITIES OF INTERNATIONAL INTEGRATION 
 
 
1. (SBU) Summary:  During his visit to Ho Chi Minh City (HCMC) on 
May 6, the Deputy Secretary focused on the economic challenges and 
opportunities that lay ahead for HCMC, Vietnam's economic and 
financial locomotive.  The U.S.-educated Vice-Chairman of HCMC's 
People's Committee told the Deputy Secretary that the city 
administration was focused on four core issues:  shifting the 
economy from manufacturing to hi-tech and services, managing 
burgeoning environmental and infrastructure demands, improving 
public service efficiency, and upgrading the city's education 
system.  While some Vietnamese feared the implications of WTO 
accession and international economic integration, foreign 
competition has been good for HCMC and will be encouraged, the 
Vice Chairman affirmed.  To underscore this point, the Deputy 
Secretary participated in a license presentation ceremony for a 
 
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new U.S. environmental services investor and toured a new U.S. 
software developer headquartered in HCMC.  Dr. Nhan's leadership 
and reform-orientation help explain why HCMC -- as well as other 
neighboring provinces with the same mindset -- can grow at up to 
15 percent per year, while others languish.  End Summary. 
 
VISITING VIETNAM'S ECONOMIC POWERHOUSE 
-------------------------------------- 
 
2. (SBU) During a visit to HCMC on May 6, the Deputy Secretary met 
Nguyen Thien Nhan, Vice-Chairman of the HCMC People's Committee, 
to discuss the development challenges facing the city -- Vietnam's 
economic engine.  (Note: With roughly 15 percent of the 
population, HCMC and its neighboring provinces account at least 
for 36 percent of GDP, 34 percent of GVN tax revenue and 42 
percent of the country's total USD 26 billion FDI investment. End 
note.)  Opening the discussion, Nhan said that HCMC's rapid 
development -- 10 percent annually over the past 15 years -- has 
brought with it many public administration challenges.  The city's 
economy doubles in size every seven years, but adds another 
million inhabitants in the process.  HCMC was built for no more 
than 2.5 million persons, but now has at least 6 million.  Nhan 
told the Deputy Secretary that city planners anticipate that the 
city will have 9 million inhabitants by 2020.  City managers 
understand that they must move quickly to expand transportation 
and environmental infrastructure to handle increased population 
density, lest infrastructure shortcomings become a drag on growth. 
The city also must improve its management of land allocation to 
ensure that land is more readily available for infrastructure 
projects, business and urban green space. 
 
SERVICES AND HI-TECH 
-------------------- 
 
3. (SBU) Nhan said that HCMC's rapid growth means it can no longer 
compete other provinces on the basis of cheap land or low wage 
costs.  To continue to grow, HCMC must develop higher paying jobs 
in the services and high-technology sectors.  This, in turn, means 
the city must upgrade education delivery so that HCMC has an 
adequate talent pool to feed the hi-tech and services sectors. 
 
GLOBALIZATION, FOREIGN INVESTMENT AND WTO ACCESSION 
--------------------------------------------- ------ 
 
4. (SBU) Nhan acknowledged that many local businessmen are nervous 
over the prospect of increasing foreign competition, particularly 
considering Vietnam's drive to join the World Trade Organization 
(WTO).  They fret they only have 20 years of private sector 
experience -- Vietnam only began economic liberalization in 1986 - 
- and will not be able to compete with foreign companies that have 
been competing for "200 years."  The Deputy Secretary noted that 
Microsoft was built within those 20 years; being a newcomer in 
business is not an obstacle to Vietnamese international 
competitiveness. 
 
5. (SBU) The Deputy Secretary emphasized that U.S. business can 
play a catalyzing role in Vietnam's services sector, particular in 
financial services, energy, telecom and distribution.  The service 
sector is the "connective tissue" of a nation's economy.  More 
efficient delivery of services translates into higher economic 
growth.  Japan, which has a strong manufacturing sector but a weak 
services sector, shows how inefficiency in the services sector can 
retard growth, the Deputy Secretary emphasized. 
 
6.  (SBU) Nhan concurred, noting that HCMC's experience has been 
that the education and health care sectors have improved with 
foreign investor participation.  In contrast, Vietnam's state- 
monopolized telecom and transportation sectors languish.  While 
business may worry, over time, Vietnam's service sector will open 
to foreign investors and the share of state owned enterprises 
(SOEs) in HCMC's economy will drop from the current 42 percent to 
30 percent by 2020.  To drive home this message to the assembled 
senior city administrators and local media, Nhan switched to 
Vietnamese, stressing that foreign competition improved the 
overall quality of service for the HCMC's residents. 
 
7. (SBU) The HCMC Vice-Chairman said the city has been trying to 
assist small business to make the transition to an internationally 
competitive market.  While it cannot control the lending policy of 
banks, the city created a USD 3.5 million fund for concessional 
loans to small businesses in sectors of particular importance to 
the city, such as waste management.  The city also has organized 
classes for entrepreneurs and small businesses on the challenges 
and opportunities of globalization.  The city has been providing 
concessional loans to small manufacturers to help them relocate 
from the city center to industrial parks, where industrial 
pollution can be better managed and the businesses become more 
efficient.  Over the past two years, over 1,500 businesses have 
been relocated, the Vice Chairman said. 
 
ECONOMIC PLANNING:  A TWO-WAY STREET 
------------------------------------ 
 
8. (SBU) In response to a question from the Deputy Secretary, Nhan 
said that development planning is a two-way process between Hanoi 
and the provinces.  HCMC has the authority to license any domestic 
investment, no matter how large.  It also can license any foreign 
investment project up to USD 40 million; larger investments are 
approved in Hanoi.  More generally, although the Ministry of 
Planning and Investment in Hanoi is responsible for setting 
Vietnam's broad economic orientation and objectives through the 
country's five-year plan, provinces have input in the drafting 
process.  Provinces also can work through their legislative 
delegations to modify the MPI's draft as it moves through the 
National Assembly approval process.  Finally, provinces can work 
with Hanoi to adjust the plan's targets to meet a province's 
individual needs. 
 
LEMNA AND GLASS EGG 
------------------- 
 
9. (SBU) The themes of foreign investment catalyzing development 
and improving the lives of Vietnamese citizens continued in the 
license presentation ceremony for the Lemna Corporation's USD 36 
million solid waste management project that followed the courtesy 
call.  In his remarks, Nhan emphasized that the city appreciates 
the role that the Minnesota-based Lemna Corporation will play in 
solving a pressing environmental challenge.   Speaking in 
Vietnamese in front of the assembled senior city staff responsible 
for the project, Nhan stated that if there were a problem in 
implementation, he would get involved. 
 
10. (SBU) The Deputy Secretary also visited Glass Egg Digital 
Media, a U.S.-invested video game and art production facility, to 
examine the challenges and opportunities of the technology sector 
in HCMC.  Chief Operating Officer Charles Speyer described how the 
company develops software and graphic design products for such 
companies as Mattel, Atari and Microsoft.  During a demonstration 
of the company's newest product, design work for a game for 
Microsoft's "X-Box" system, Speyer noted his staff had found 
bootleg copies of the game on the streets of HCMC the very day it 
was released in the United States.  (He noted that Microsoft had 
not yet sent them a promised legal copy of the final product.) 
While this underscored the IPR issues with which Vietnam continues 
to grapple, Speyer was generally positive about HCMC hi-tech.  He 
cited the abundance of skilled, young labor, as well as continued 
improvements in infrastructure, as evidence of the city's ability 
to compete. 
 
11. (SBU) Comment:  Dr. Nhan's frankness and no-nonsense demeanor, 
his understanding of the international economic environment and 
his openness to foreign investment demonstrated why he is one of 
our most important HCMC government interlocutors and one of the 
city's most progressive leaders.  He clearly understands the 
importance of reform to Vietnam's continued growth and 
development.  It is this vision and leadership that helps explain 
why HCMC and some neighboring provinces are growing quickly -- up 
to 15 percent annually -- while others are not.  Political leaders 
in the HCMC area are determined to create a government culture 
more responsive to private business needs.  These same leaders 
also have been relatively progressive in handling religious 
freedom and human rights issues.  HCMC leaders such as Dr. Nhan 
seem to appreciate that financial and capital market reform and 
strengthening of rule of law are needed to prevent growth from 
sputtering, particularly in a WTO environment.  However, they must 
contend with calls from naysayers within the Communist Party who 
fret that reform erodes the power and patronage that help them 
control Vietnamese society.  End Comment. 
 
12. (SBU) Bio Note:  Dr. Nhan has a background in engineering and 
information technology, as well as economics.  As a Fulbright 
scholar, Dr. Nhan earned a Master's degree in public 
policy/finance from the University of Oregon.  He has taught at 
the Fulbright Economics Teaching program in HCMC. 
 
13. (U) List of Participants: 
 
U.S. Side 
--------- 
 
The Deputy Secretary 
Consul General Winnick 
Ambassador Huhtala 
Ambassador Wilson 
Deputy Press Spokesman Ereli 
Chris Castro, D 
Christine Davies, D 
Lisa Martilotta, D 
Deputy Principal Officer Kenneth Chern 
HCMC PolOff Rob Silberstein (notetaker) 
HCMC ConOff Jocelyn Vossler (notetaker) 
HCMC Pol/Econ Specialist Huong Lan Tran (interpreter) 
 
Vietnamese Side 
--------------- 
 
Nguyen Thien Nhan, Vice Chairman of the HCMC People's Committee 
Le Hung Quoc, Deputy Director of the HCMC External Relations 
Office 
Tran The Ngoc, Director of HCMC Department of Natural Resources 
and Environment 
Pham Hong Ky, Chief of the Southern Office of the Ministry of 
Planning and Investment 
Truong Van Lam, Chief of staff of HCMC People's Committee's Office 
To Tu Uyen, Vice Chairwoman of the People's Committee of Cu Chi 
district, HCMC 
 
14. (U) This cable was cleared by the office of the Deputy 
Secretary. 
 
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WINNICK