SUMMER IS SINK-OR-SWIM TIME FOR VIETNAM'S LEADING

UNCLAS SECTION 01 OF 02 HANOI 000205

SENSITIVE
SIPDIS

STATE FOR EAP/MLS MBROWN
SINGAPORE FOR TREASURY
TREASURY FOR SCHUN
USTR FOR DBISBEE
USDA/FAS/OCRA/DLUCHOK

E.O. 12958: N/A
TAGS: ETRD EAGR EFIS ELAB ECON KTDB KTEX PGOV VM
SUBJECT: SUMMER IS SINK-OR-SWIM TIME FOR VIETNAM'S LEADING
EXPORTERS

REF: 08 Hanoi 1162 (Vietnam in Trade Deal With Japan)

HANOI 00000205 001.2 OF 002


This cable is Sensitive but Unclassified. For official use only,
not for dissemination outside USG channels or posting on the
internet.


1. (SBU) Summary: Orders for most of Vietnam's leading exports are
down across the board, by about 25% or higher, according to industry
representatives. At this point, exporters are not panicking because
they still have orders to keep them active for this quarter. Some
are even hoping to expand market share or streamline operations
during the global economic crisis. However, if economic conditions
in Vietnam's major markets do not improve, exporters will be forced
to make hard decisions about significantly scaling back operations.
The crunch time begins in May or June for garment and footwear
exporters, and summer for electronics and furniture manufacturers.
Seafood exporters expect that the leaner times will allow them to
take market share from higher-end competitors. All major exporters
hope that Vietnam will continue to pursue trade liberalization deals
abroad. End summary.

ORDERS DOWN ACROSS THE BOARD
--------------


2. (U) Econoff met in February with representatives of Vietnam's
leading export manufacturing industries. They report significant
drops in overseas demand. Orders for the garment and seafood
industries, the country's second and fourth largest export earners
in 2008, were down in December and dropped even lower in January
(down over 30%) on a year-over-year (yoy) basis. (Crude oil remains
Vietnam's largest export earner.)
Footwear exports, which rank third, were down by 24% yoy in January
and will face higher tariffs this year in the EU, their largest
market. Electronics will also drop by 30% and furniture exports by
70% in early 2009, according to industry estimates. Together, the
textile and garments, seafood, footwear, electronics and furniture
industries accounted for 38% of Vietnam's exports in 2008.

CRUNCHTIME COMES SOON
--------------


3. (U) Despite suffering steep drops in exports, none of these
sector representatives said their members planned significant
cost-saving measures at this time. Electronics and furniture
exporters received their orders for 2009 at around the same time the
global economic crisis began to unfold in 2008, while garment and
footwear firms report enough orders to keep them afloat through the
first quarter of 2009. Seafood exporters, after seeing shipments
drop at the turn of the year, reported recently that they are
already back to near 2008 levels. The time of reckoning for all
these industries will come at the end of the first quarter or
shortly thereafter.


4. (U) Christmas-time orders for garments start rolling in after
March, and by May the garment industry will know the full impact of
the economic crisis, according to Vitas, Vietnam's leading apparel
manufacturers' association. The U.S. is by far Vietnam's largest
garments market, taking in 54% of their exports, followed by the EU
(18%) and Japan (12%). Of the three, Japan is the only one where
Vitas members could see any growth, as a result of their
recently-concluded FTA (Reftel). Russia and the Middle East are
other markets where they will pursue opportunities to make up for
lost markets.


5. (U) The footwear industry is on a similar timeline. Export
numbers were strong in 2008, including increases yoy in November and
December, but they began to drop in January, coinciding with the
EU's "graduation" of Vietnam's footwear industry from GSP
preferences that same month, which raise some tariffs by as much as
660%. The change is hitting producers of leather footwear
particularly hard.


6. (U) Electronics exporters traditionally receive their yearly
orders in June and July. Over half of their production goes to
Japan and, although they can benefit from the new Japan-Vietnam
trade deal, the situation for 2009 is "worrisome," according to the
Vice Chairman of VEIA, the electronics industry association. The
furniture industry receives its most significant orders in September

HANOI 00000205 002.2 OF 002


and October, and early signs are not good. U.S. exports of lumber
for that industry, which had been one of the brightest spots of our
bilateral trade (Septel),began dropping in November 2008 and went
down by 60% and 47% yoy in December and January, respectively.


7. (SBU) The seafood industry is in better shape. The Vice Chairman
of VASEP, the seafood association, told Econoff that the worst for
them may be over. Aside from luxury seafood like large shrimp,
which will probably suffer from the global crisis, VASEP members are
feeling bullish about 2009. The Russian market, which was up by 83%
in 2008, has just re-opened for Vietnamese exports, and they expect
big growth elsewhere in Eastern Europe and Europe, as consumers
switch from increasingly expensive marine fish to freshwater
white-fleshed pangasius. Growth in the U.S. (3%) in 2008 was among
the lowest in all markets and the U.S. share of seafood exports was
16.5%. "Economic downturns are good for low prices," the Vice
Chairman said, echoing the industry's sentiments.

COMMENT: BITING NAILS AND BULLETS IN LATTER 2009
-------------- ---


8. (SBU) Comment: All of Vietnam's most important manufacturing
export sectors ushered in 2009 in a downward trend. One factor that
has served as a buffer thus far is the buying cycle of Vietnam's
leading export industries. Contracts for winter season deliveries
of apparel, footwear and other consumer goods are placed months in
advance, meaning that many Vietnamese producers had their winter
order books full by mid-summer of last year, well before the global
economic slowdown became obvious in the fall. If the situation in
the country's major foreign markets does not brighten by the early
summer, these businesses will have to make hard decisions about
significantly cutting operations and reducing staff. For now, the
best-run firms are focusing on increasing competitiveness and
lobbying the Government to accelerate trade liberalization deals.
These are welcome developments in an otherwise-bleak outlook. End
Comment.


9. (U) This telegram was coordinated with ConGen Ho Chi Minh City.

MICHALAK