VIETNAM'S SOUTHERN ECONOMIC TRIANGLE SUCCESS

UNCLAS SECTION 01 OF 03 HO CHI MINH CITY 001528

SIPDIS

SENSITIVE

STATE PASS USTR FOR E.BRYAN

E.O. 12958: N/A
TAGS: EINV ETRD EFIN ECON PREL PGOV VM PHUM KIRF SOE RELFREE HUMANR
SUBJECT: VIETNAM'S SOUTHERN ECONOMIC TRIANGLE SUCCESS


1. (SBU) Summary: Consul General and ConGen team traveled to
Dong Nai and Binh Duong provinces to examine the two
provinces' economic performance that is double the national
average. Local officials credit their economic success to
1990's policy decisions creating the southern economic
zones. In our view what separates these provinces is the
leadership of local officials and their investor-friendly
attitude. Provincial authorities, particularly in Binh
Duong, also appear to extend this "laissez faire" approach
to religious freedom issues. Despite the two provinces'
track records and Hanoi's apparent encouragement, other
provinces are slow to follow Binh Duong and Dong Nai's lead.
Risk-taking is still not the norm for most provincial
leaders. End Summary.


2. (SBU) Over the past decade, the provinces of Dong Nai and
Binh Duong, adjacent to HCMC, have consistently grown at
double Vietnam's national average. Other provinces with
comparable proximity to HCMC have not kept pace. To better
understand what underpins this success and to obtain
investment information for American businesses, the CG and
Econ, Pol, Consular and FCS officers visited Dong Nai and
Binh Duong Provinces on November 10 and November 23,
respectively.

Dong Nai: "we should walk together with business"
-------------- ---


3. (SBU) The Chairman of the People's Committee of Dong Nai,
the Director of the Department of Planning and Investment
(DPI),and the Deputy Head of the Dong Nai Industrial Zone
Authority (IZA) emphasized their firm commitment to
promoting a business-friendly environment in the province.
They said that the GVN's economic reforms in the late 1980s
and early 1990s had given them the impetus and legal
foundation to act. They credited their proximity to HCMC's
markets, airport, and ports as a catalyst for the province's
growth. Dong Nai also has pre 1975 experience with
industry. Bien Hoa 1 Industrial Zone was established as
Vietnam's first industrial zone in 1963 and was well
positioned to restart Vietnamese industrialization when Doi
Moi began in 1986.


4. (SBU) According to the province's Chairman, Mr. Vo Van
Mot, Dong Nai Province is able to maintain a high growth
rate averaging 12-13 percent per year because of rapid
growth in the industrial sector. In 2003, the industrial
sector -- half the local economy -- grew 19 percent.
Services, which comprise a quarter of the Dong Nai economy,
grew at 12 percent in 2003. Dong Nai is home to 3,141
domestic invested projects and 570 Foreign Direct Investment
(FDI) projects.


5. (SBU) The Dong Nai officials said that, to sustain their
success, the Department of Planning and Investment (DPI) and
the Industrial Zone Authority, with the assistance of the
People's Committee, often amend regulations to make them
more favorable to investors. Dong Nai's DPI routinely
interacts with investors to provide information on
investment, facilitate operations, and to resolve problems.
Chairman Vo told the CG that the province advocates on
behalf of investors -- foreign and domestic -- with the
central government when the issue is beyond their local
control.


6. (SBU) Calling FDI an "integral part of our economy,"
Chairman Vo said he was not satisfied with the province's
current FDI stock. While large by Vietnamese standards, in
real terms FDI investment is modest, especially compared to
China. He acknowledged that private business needs better
access to capital markets and that restructuring of SOEs
remains a problem. According to the Chairman, SOEs still
hold the largest share of the province's economy, although
private enterprise has been growing more quickly.


7. (SBU) Provincial officials also briefed the CG on a new
airport initiative. Tan Son Nhut Airport in Ho Chi Minh
City is expected to reach full capacity by 2012. As a
result, the Southern Airports Authority (SAA) has proposed
building a new international airport at Long Thanh in Dong
Nai Province, eventually becoming the sole international
airport for the region. According to the Dong Nai DPI
Director, construction will begin in 2010. However, the SAA
is still looking for potential investors and has yet to
undertake a feasibility study. In addition to the new
airport, Dong Nai is planning to relocate one of Ho Chi Minh
City's major seaports to the province.

Binh Duong: Success Breeds Success
--------------


8. (SBU) As in Dong Nai, provincial leaders in Binh Duong
province credited GVN policies for creating conditions that
allowed them to achieve a nearly 15 percent growth rate last
year. According to the Binh Duong People's Committee, the
province has attracted 868 FDI projects from 34 countries,
with a total investment value of USD 4.1 billion, about 9
percent of Vietnam's entire FDI stock. In 2003, the province
attracted 135 new FDI projects, while another 106 foreign
investors increased their capital investment for a total
capital investment of USD 458 million. There are 26 U.S.-
linked FDI projects in Binh Duong totaling USD 200 million,
roughly 17 percent of the total U.S. FDI outlay in Vietnam.
These investments range from several hundred thousand
dollars to 80 million dollars, according to People's
Committee Chairman Nguyen Hoang Son.


9. (SBU) While giving Hanoi the lion's share of the credit,
Chairman Son said Binh Duong had been able to attract
investors because the province has a cooperative attitude
and is willing to learn from foreign investors. He told the
CG that the province's focus is to simplify procedures and
address investor concerns. The province recognizes that
building an investor-friendly reputation will make it easier
to attract greater investment. In this regard, Binh Duong
has organized its own overseas trade missions to attract
FDI.


10. (SBU) Provincial leaders also emphasized that while FDI
gives the province valuable cachet and foreign know-how,
they also have been working hard to attract domestic
investment. In recent years domestic investment has begun
to outstrip FDI in the province. Chairman Son added that
Hanoi has begun to recognize Binh Duong's economic
achievements and has recommended that other provinces visit
to copy Binh Duong's best practices. It was up to the
leadership of a particular province to follow suit, he said.
(Note: The former head of the Communist Party in Binh Duong,
Nguyen Minh Triet, was promoted to the Politburo and to lead
the HCMC Party Committee after helping guide Binh Duong's
economic development in the early 1990s. End note.)

American Investors Satisfied
--------------


11. (SBU) Managers of U.S.-affiliated companies in both
provinces praised provincial leadership for its transparency
and efficiency. They noted that the inflow of domestic and
foreign investment was creating upward pressure on salaries,
particularly for management-level positions. The investment
also has exhausted the local labor market. Today industry
uses recruiters to hire employees from the Mekong Delta or
central Vietnam. However, despite the added costs, the two
provinces remained the business representatives' first
choice for any new investment in Vietnam.


12. (SBU) In meetings, provincial authorities were open to
new ideas and input on how to attract greater American
investment. The CG suggested several areas of improvement,
including improved legal transparency and intellectual
property rights protection. He also encouraged the
provinces' leaders to urge the GVN to conclude negotiations
for WTO accession.

Freedom of Religion
--------------


13. (SBU) Binh Duong also appeared to take a more
progressive approach to religious affairs than do most other
provinces. The provincial Head of the Committee for
Religious Affairs (CRA) and the Deputy Director of the
Ministry of Public Security (MPS) told us that they
recognized that religious freedom issues were very
sensitive. They were consulting with local religious
leaders, including members of the nascent house church
movement in province, about the Ordinance on Religion. Binh
Duong MPS and CRA officials told us that they had no plans
to use the law to close house churches, but would work to
encourage house churches to register their operations under
the new legal framework. We later met with the leader of a
200-member house church in Binh Duong who told us that, in
contrast to prior years, her church has faced no police
harassment in 2004. She added that over the past year, she
had been able to develop a good working relationship with
local police and the CRA and was beginning to think about
the process of registration under the new law.


14. (SBU) The outgoing Bishop of Dong Nai, Phaolo Maria
Nguyen Minh Nhat, told us that relations between the Church
and the government in the province are gradually improving.
In particular, the Bishop said that much of the mutual
suspicion that existed between Church and State in the years
after unification had dissipated. He said that the next
day, the church would celebrate the investiture of its new
Bishop -- at least 3,000 persons were expected to attend the
ceremony. (Note: With one million believers, the Dong Nai
- Binh Duong - Vung Tau diocese is the largest in Vietnam.
Many are refugee families from the former Communist-
controlled North Vietnam who were resettled during partition
in 1954.) As in other provinces in southern Vietnam, the
Dong Nai diocese is looking forward to testing provisions of
the Ordinance on Religion that increase its autonomy, such
as the right to appoint and transfer priests.


15. (SBU) In contrast to his counterpart in Binh Duong, the
CRA Chairman in Dong Nai told us that he planned to enforce
provisions in the new legal framework on religion that ban
the operation of religious organizations that are not
registered with the Government. However, to date, we have
not received any reports of local authorities using the law
to crack down on house churches in Dong Nai province.


16. (SBU) Comment: Dong Nai and Binh Duong Provinces are
doing well by any measure. Both provinces engineered an
almost complete transformation of their economies from
predominantly agrarian to overwhelmingly industrial and
services-based in as little as 10-15 years. The key to
their success is leadership. Other provinces have similar
proximity to HCMC or other ports and airports; none have the
same rate of growth. Despite the two provinces' track
records and Hanoi's apparent encouragement, other provinces
have been slow to follow or to promote reformers to
leadership positions. Despite the Binh Duong/Dong Nai model,
steadiness, state control and caution are still seen as the
route to job stability by most provincial leaders in
Southern Vietnam. End comment.

WINNICK