UNCLAS HANOI 002378

SIPDIS

STATE FOR EAP/BCLTV, EAP/EP, EAP/CM
STATE PASS USTR ELENA BRYAN
STATE PASS NSC HOLLY MORROW

SENSITIVE - DO NOT POST ON THE INTERNET

E.O. 12958: N/A
TAGS: ECON EFIN ETRD PREL CM VM CVR ASEAN WTO
SUBJECT: CHINA'S TRADING HOPES AND REGRETS


1. (SBU) Summary: According to Chinese Embassy Economic and
Commercial Counselor He Xiaoling, Chinese businesses face
many of the same obstacles - lack of transparency,
transportation, and expediency - that American companies
face when doing business in Vietnam. She attributed the
dramatic rise of bilateral Chinese-Vietnamese trade to more
than USD 6.7 billion in 2004 to the Chinese-ASEAN Free Trade
Agreement, rising oil prices, and Vietnam's textile quotas.
She also shared some insights into China's disappointment
with the amount of concessions given to the Vietnamese at
the close of its bilateral WTO accession negotiations. End
Summary.


2. (SBU) On Thursday, September 1, EconCouns and Econoff
meet with Chinese Embassy Economic and Commercial Cou
nselor Ms. He Xiaoling. Ms. He, a fluent English speaker
trained in Beijing, Hong Kong, and the United States
(Colorado), was accompanied by Economic and Commercial
Second Secretary Mr. Wei Xichen, who said he was on his
second tour and seventh year in Hanoi. Ms. He, who has only
been in her position for five months, began the discussion
with a description of the business climate in Vietnam,
frequently referencing her own previous experience here as a
textile buyer for a Chinese SOE. She joined the Ministry of
Foreign Affairs (MFA) in 2000. She observed that Vietnam's
business climate is a difficult one for Chinese firms,
despite the recent boom in trade. Chinese companies list a
lack of government transparency, poor transportation
infrastructure, and slow, complicated government decision-
making as their top complaints. Ms. He added that the Prime
Minister, in her experience, reviews any foreign contract
worth more than USD 60,000, which means, in practice, that
all business proposals require the Prime Minister's
approval.


3. (U) When asked why, despite these obstacles, Chinese-
Vietnamese trade had increased so dramatically in 2004, Ms.
He named three factors: 1) the benefits of the China-ASEAN
Free Trade Agreement; 2) the rising price of oil and
Vietnam's inability to refine it (requiring export to China
for processing and then re-import to Vietnam as refined
products); and 3) the lower quality of Vietnamese textiles,
which, Ms. He claims, creates a demand for higher quality
textiles to maximize Vietnam's quotas, textiles which China
can most cheaply and easily supply. (Note: Chinese total
trade with Vietnam in 2004 reached USD 6.743 billion, up
more than 45.3 percent from 2003. Total trade in January
2005 alone was more than USD 753 million. Even more
astounding are China's 2004 imports, which, at USD 2.482
billion, are up 70.4 percent from 2003. As a point of
reference, Vietnam's total bilateral trade with the United
States reached USD 6.4 billion last year. End note.)


4. (U) Ms. He also expressed hope that the proposed rail
line and roadway to connect Guangzhou, China and Haiphong,
Vietnam would increase trading opportunities even further.
She noted the Chinese refer to this plan as the "Two
Corridors, One Belt" concept which, if realized, would
eliminate some of the transportation obstacles Chinese
companies currently face.


5. (SBU) Most interesting of all, Ms. He and Mr. Wei, both
of whom participated in the seventh and final Chinese-
Vietnamese WTO negotiating round, expressed some regret at
the way China had concluded its bilateral agreement with
Vietnam on WTO accession. They confirmed that Article No.
44 of the Chinese-Vietnamese WTO agreement details China's
concession on safeguards, which the Vietnamese pledged not
to use against them. Ms. He also expressed regret that such
important issues like tariffs on Chinese motorcycles were so
quickly conceded when raised by the Vietnamese. She opined
that this was partly a politically motivated conclusion that
took place on the margins of the July visit of Vietnamese
President Tran Duc Luong to Beijing.

MARINE