HCMC BUSINESS LEADERS: EVEN INSIDERS INCREASINGLY FAVOR

UNCLAS SECTION 01 OF 03 HO CHI MINH CITY 001281

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EAP/MLS, EEB/TPP/BTA/ANA
STATE PASS TO USTR DBISBEE
TREASURY FOR SCHUN
COMMERCE FOR HHPHO
USAID/ANE

E.O. 12958: N/A
TAGS: ECON EAGR ELNT ETRD BEXP VM
SUBJECT: HCMC BUSINESS LEADERS: EVEN INSIDERS INCREASINGLY FAVOR
TRANSPARENCY

REF: HO CHI MINH CITY 1265

HO CHI MIN 00001281 001.2 OF 003



1. (SBU) The political influence of Ho Chi Minh City's business
establishment has increased as Vietnam's economy has grown. In
stark contrast to the days of the command economy, the
Government of Vietnam (GVN) now celebrates the business
community's contributions to the national development (on
October 13 each year) and businessmen are sought after as Party
members. This first in a series of cables analyzing the role of
HCMC's business community in shaping Vietnam's future focuses on
those agents of change who are working from inside the system.
We examine two business leaders who owe their start to their
political connections but their current success to their
business acumen. Rather than being content to run (typically
money-loosing) state-owned enterprises, these two represent a
small but growing class of business leaders who have transformed
the companies they run into highly competitive private
businesses. Both due to their economic clout and their
connections, forward-looking managers such as these are a major
voice for economic reform in Vietnam. End summary.


2. (SBU) This is the first in a series of cables analyzing the
role of HCMC's business community in shaping Vietnam's policies.
We will assess the politically-connected, the self-made, and
those who were associated with the old regime but have overcome
that stigma to make money and gain influence.

Economic Reforms Create a New Political Reality
-------------- --

3. (SBU) Economic reforms have made Vietnam tangibly wealthier;
confirming to virtually every Vietnamese citizen that the doi
moi reforms (to shift to a market-oriented economy) started in
1986 are propelling the country in the right direction.
Vietnam's GDP has grown at an average annual rate of eight
percent since 2001 and per capita income has risen from USD$220
to USD$830 (2007 est). A recent World Bank study placed the
purchasing power parity (PPP) per capita income in Vietnam at
over USD$2,000. With the economic stagnation and extreme
deprivations of the 80's still a vivid memory for most adults,
the majority of Vietnamese clearly support the path of economic
reform and global integration.


4. (SBU) Former Prime Minister Phan Van Khai officially
recognized business as a guiding force in Vietnam's economic
development in 2004 when he decreed October 13 as "Business
People's Day" to honor them and recognize their contributions to
national development. The 10th National Party Congress of
Vietnam in April 2006 promulgated a resolution to recruit
businessmen to the Party and allow Party members to own private
businesses. While it may seem academic, recognizing the
"business class" as equal with the working class, the farmers
and the intellectuals represented a fundamental doctrinal shift
for the CPV.

HCMC's Well-Connected Business Leaders
--------------

5. (SBU) HCMC is the nation's economic engine and serves as a
crucible for developing and testing new ideas in the economic,
political and social spheres. The city accounts for 20 percent
of GDP and its tax contribution provides 33 percent of the state
budget -- all with only 6.5 percent of the official population.
In 2007, HCMC's average per capita income is estimated at
$2,200, almost triple the national average of $830, and its GDP
grew at 12.6 percent.


6. (SBU) Politically-connected business people with sterling
revolutionary credentials enjoyed almost exclusive access to
Vietnam's leaders in the 90's when the government turned only to
familiar voices for advice on managing the economy. This access
still means quicker approvals, less red tape and often inside
information, as their track-record in developing property
demonstrates. For the most successful business leaders,
however, connections alone do not tell the whole story.
Instead, they combine their connections with business savvy,
good financial management and a willingness to break new
business ground in order to turn crumbling state enterprises
into rising economic stars. Increasingly, they are advocates
for dismantling the system of preferences that gave them their
start.

Creating and Defending an Empire
--------------

7. (SBU) Typical of this group is Nguyen Thi Nghia. Born in

HO CHI MIN 00001281 002.2 OF 003


Saigon in 1948, she joined the revolution at the age of 15 and
was active in the anti-war students' movements before 1975.
When cooperatives crumbled under the cumulative weight of poor
management and public distrust toward the end of the 80s, Nghia
was serving as the Chief of the HCMC's Cooperative Management
Committee. Seeing an opportunity, Nghia established the Saigon
Union of Trading Cooperatives (Saigon Co.op) with just $6,000
capital. Leveraging her position and connections (her husband
Pham Chanh Truc was Vice-Chairman of the HCMC People's
Committee) to acquire prime locations, she developed retail and
supermarkets in HCMC and later throughout Vietnam. Saigon Co.op
is now Vietnam's leading distribution chain operator and top
retailer and has been consistently ranked among the top 500
retailers in the Asia-Pacific region by Asia Retail Journal
since 2004. Earlier this year, a Japanese retail trade group
named Co.op as one of the top 20 emerging retailers in Asia.


8. (SBU) Translating commercial success into a political career,
Nghia was elected to the National Assembly for the 2002-2007
legislature and gained even more influence in 2005 when then PM
Khai awarded her the Labor Hero Order, the highest honor
recognizing achievements in labor. In early 2007, she
established the Retailers' Association of Vietnam in order "to
protect and promote" local emerging retailers and distributors.
The association now flexes considerable muscle; for example it
successfully lobbied the GVN to promulgate Circular 9 to keep
foreign firms out of the retail market for as long as it can
under WTO commitments (reftel).


9. (SBU) While there is no doubt that Nghia's political
connections have helped her enormously, there is also no doubt
that she is building a market-based, competitive retail and
distribution system. She is particularly proud that all
managers of Co.op's new chain of "super stores" all have U.S.
retail management experience and/or training.

From Refrigeration to Empire
--------------

10. (SBU) Nguyen Thi Mai Thanh is Chairwoman and General
Director of Refrigeration Electrical Engineering Corporation
(REE). Born in 1952 in a southern province of Tay Ninh, Thanh
joined the medical team of a revolutionary force led by her
father in 1968 when she was just 16 years old. Her father later
went on to become the commander of Military Region 7, the region
around HCMC. With these sterling credentials, Thanh was chosen
to head a state-owned refrigeration and HVAC contracting
company. Rather than just run the struggling company as before,
however, Thanh transformed REE into the "poster child" for
economic reform, becoming Vietnam's first equitized company
(1993),the first Vietnamese company to raise capital through
bond issuance (1996),the first company listed on the HCMC stock
exchange (2000) and the first Vietnamese company to issue
convertible bonds (2003). Along the way, REE is also commonly
held to have received another boost from Thanh's military father
in the form of prime land for a high-technology business center
("e-town") in HCMC. (Comment: We cannot say for certain if her
connections helped Thanh obtain more preferable treatment in
this deal or if it was simply that her knowledge of the
military's surplus land led her to propose an economically
viable development plan. End Comment.)


11. (SBU) Thanh is now an informal advisor to Vietnam's
leadership and advocates for increased transparency, especially
for the sale of downtown HCMC's twenty "golden site" properties
planned for development. Thanh told us that when she asked how
to go about bidding on one of the golden sites to develop,
officials informed her that the selection process was closed.
While she could not choose which site to bid on, she was told
that she would nonetheless be assigned at least one site to
develop. Rather than being happy with her good fortune for
being allocated a site, she complained to the HCMC People's
Committee that lack of transparency damages both the city and
the market. Chairman Quan said he understood but that HCMC
could do nothing since "the decision was made in Hanoi," so
Thanh took her case to Prime Minister Dung. HCMC recently took
bids on the very same properties, receiving offers higher by a
factor of ten than anticipated using the original "strategic
partner" approach.


12. (SBU) Like virtually every Vietnamese, Thanh put the past
behind when doing business with Americans. "There are more
business opportunities that benefit both Vietnamese and American

HO CHI MIN 00001281 003.2 OF 003


companies being created," she said in a media interview as she
accompanied President Nguyen Minh Triet in his June 2007 visit
to the United States.

Comment:
--------------

13. (SBU) Many still think of Vietnam as one vast smoke-filled
room where decisions are made by the Communist Central
Committee. This is no longer the case for the majority of
businesses in Vietnam. As these two cases illustrate, even
politically connected businesses recognize how much they benefit
from Vietnam's move toward becoming a market economy. While
many state-owned enterprises either founder to barely stay
afloat, those that are prospering are doing so as much based on
their business plan as their political connections. In the
future, we believe that the space for those who rely solely on
connections to do business will continue to narrow. HCMC's
increasingly feisty newspapers serve as a constant reminder to
those who rely too heavily on connections and special deals that
printing stories about corruption and unfair dealing is now fair
game. End comment.


14. (U) This cable was coordinated with Embassy Hanoi.
FAIRFAX