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Vietnam Beckons Foreign Capital

Hanoi needs foreign investment to stimulate growth, but US maintains trade embargo. REFORMING COMMUNISM

By Clayton JonesStaff writer of The Christian Science Monitor / July 23, 1991



BAT TRANG, VIETNAM

ANY investor or trader with an eager eye on the 67 million people of Vietnam need only travel to this village down the Red River from Hanoi to spot both the pitfalls and potential of Asia's newest available market.Market mechanisms are still new to Hanoi's dyed-in-wool communist rulers, and Bat Trang, a famous riverfront pottery village from centuries past, is one example of how they have tried to mix their favorite and most feared ideologies in recent years to come up with something called "state capitalism," and then hung out a shingle to welcome foreign money. In 1989, the few operating ceramic kilns in Bat Trang were liberated from the Stalinist-era stagnation of a state collective, whose product-quality was shoddy, whose exports were by barter only, and whose workers were among the poorest in the world. Within months after the concept of "household economy," or family business, was approved by party edict in 1989, over 900 private kilns were started up by families tapping their deep pottery traditions. Several buyers from Japan and Europe signed contracts for exports. Every home in Bat Trang soon became wealthy enough to own a television, and some even video recorders. So fast-paced was the pottery production that Bat Trang's narrow lanes became thick with the black coal burnt in kilns and the white kaolin used in making fine porcelain ware. The most dominant private enterprise is owned by Le Xuan Pho, who employs over 2,000 workers. Some of Mr. Pho's pottery painters earn over $1,200 a year, or about 10 times the per capita income in Vietnam. Last year, says Pho, half of his production was exported, bringing in about $300,000, while half his enterprise's profits went to the government in taxes. However, as many foreign business people have discovered ever since Vietnam passed a liberal foreign investment law in 1987, the heavy hand of the Communist Party always lurks in the background, ready to change the rules or direct business its way. Capitalism, under Vietnam's experiment with economic reforms since 1986, has only as much free rein as the party, or rather certain party officials, will allow, either in preventing "excessive" wealth or, as is now all too common, to benefit themselves. "You have to know who is really calling the shots behind the scenes before venturing into this market," says a Singaporean oil industry executive on a visit to Hanoi. In Bat Trang's case, the local party chief also happens to be the brother of Mr. Pho, who not only has the biggest business in Bat Trang but seems to snatch all the foreign deals. Such cozy ties between officialdom and new enterprises is readily admitted by top Vietnamese officials, who say foreigners so far prefer dealing with those who have long held power in a one-party state. Only last June, the party pushed through a law allowing private Vietnamese enterprises to deal directly with foreign investors, but only one such venture has been licensed. "Over the years, foreign companies have gotten used to working with state companies, and they don't have much interest in private firms," says Bau Ngo Xuan, chairman of the State Committee for Cooperation and Investment. He adds that this method of business has contributed to pervasive party corruption, which will take a long time to solve. But a bigger problem has hindered Vietnam's drive for foreign investment: Hanoi is stymied by a decade-long embargo on investment led by the United States, which pressures Japan and Europe to follow suit and keeps the International Monetary Fund from giving financial help. The embargo followed Vietnam's invasion of Cambodia in 1978. The embargo, say Vietnamese officials, has put a crimp in the party's economic reforms. Not enough investment has come in to keep pace with fast-rising unemployment, population growth, and popular expectations. Last month, the party announced it wanted to double gross national product by the year 2000. To do that, however, it needs 7 to 8 percent growth in capital investment, most of which would need to come from overseas, says Mr. Xuan. More than 60 percent of all present operating foreign investments, which measure only about $400 million so far, comes from Asian countries, led by Hong Kong, Taiwan, South Korea, and Thailand. Two new investor funds are being formed by banks in Hong Kong, similar to other "country funds" that pool capital for a broad range of low-risk investment in one country. In all, 273 investment schemes have been approved, says Xuan, with most going into small consumer industries and tourism facilities. Last year, he visited the New York Stock Exchange to get help on setting up an exchange in Vietnam, but such a dramatic icon of capitalism in a Communist-run country is still far off. The most active and biggest investments - and the least bureaucratic for foreign firms - are for offshore oil drilling, which so far has been dominated by a Soviet joint venture. Eight Western companies have signed production-sharing contracts, and at least three have made bids on a feasibility study to construct Vietnam's first oil refinery. Both US and Japanese oil companies have campaigned hard with their respective governments to allow them to bypass the embargo. Aware of this political pressure, Vietnamese officials have enticed the American oil firms by pledging to hold out certain promising offshore tracts. Vietnam does not need US oil investments, says Do Quang Toan of the Ministry of Heavy Industry, but he hopes the US firms will be successful in pressuring President Bush. American Telephone & Telegraph Company is also eager to break the embargo to open telephone connections between Vietnam and some 700,000 ethnic Vietnamese in the US. To prod Japan, Hanoi officials have threatened to demand $2.5 billion in reparations for starvation that occurred in 1945 during Japan's wartime occupation of Vietnam. "If Japanese firms really want to invest, they can find a way around the embargo," says investment chief Xuan.

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