CHINA'S INFLUENCE, CIVIL SOCIETY AND THE PACE OF REFORM ON

C O N F I D E N T I A L HO CHI MINH CITY 000232 STATE FOR EAP/MLS, USAID/ANE, EEB/TPP/BTA/ANA, INR USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO USTR FOR BISBEE E.O. 12958: DECL: 3/30/2024 TAGS: ECON EIND EFIN PGOV PREL SOCI CH VM SUBJECT: CHINA'S INFLUENCE, CIVIL SOCIETY AND THE PACE OF REFORM ON THE MINDS OF HCMC INSIDERS REF: A. A: HANOI 269 "TRADE STATS" ¶B. B: 08 HO CHI MINH CITY 739 "MEDIA CRACKDOWN CONTINUES" ¶C. C: HO CHI MINH CITY 169 "HCMC BAR ASSOCIATION RESHUFFLE" CLASSIFIED BY: Kenneth J. Fairfax, Consul General, U.S. Consulate General Ho Chi Minh, Department of State. REASON: 1.4 (b),(d) ¶1. (C) Summary: Three significant public figures, each having stood on both sides of the line that separates government from private industry in Ho Chi Minh City, engaged EAP/MLS Director Stephen Blake on the foremost issues they see confronting Vietnam: the influence of China, development of civil society and the future of economic reform. Vietnam's complicated relationship with China, especially plans to exploit bauxite in the Central Highlands, has lit up Vietnam's slice of the blogosphere, said HCMC Bar Association Vice President and HCMC People's Council member Truong Trong Nghia. Retired diplomat turned investment consultant Dr. Luong Van Ly assessed that the role the media is allowed -- or more accurately not allowed to play -- in exposing corruption in Vietnam shows political reform lags far behind economic reform. HCMC Stock Exchange Deputy Director Le Hai Tra insisted that economic reform is a matter of pace -- backsliding is not an option decision-makers are even considering. End summary. China remains a pervasive issue -------------- ¶2. (C) On March 15 EAP/MLS Director Stephen Blake met three prominent figures in HCMC to understand what issues are on the minds of the Vietnamese. Concerns about China's regional ambitions reoccurred often as a theme throughout the discussion. China is at the root of, or at least a significant contributing factor in, many problems for Vietnam, according to Dr. Luong Van Ly. He emphasized that China is the primary source of Vietnam's foreign trade deficit, noting both heavy industrial materials and cheap products from China inundate Vietnam's market. (Note: Vietnam's General Statistics Office now estimates (ref A) that after running an $18 billion trade deficit in 2008, the country had a trade surplus of $1.7 billion in the first quarter of 2009.) Mr. Truong Trong Nghia cited the example of imported Chinese motorbikes priced as low as $200. Nghia's suspicions concerning China's motives move beyond the economic to the nationalistic, leading him to comment that the market dominance of low-priced Chinese goods poses both economic and security concerns for Vietnam. ¶3. (C) China's efforts to exert influence over Vietnam manifest themselves in diverse forms, our contacts agreed. In addition to the economic influence, Mr. Nghia explained that China has long used Party-to-Party relations to influence policy at the governmental level, even to the detriment of Vietnam's environment. One example is the GVN's recent grant of land for a bauxite mining concession implemented by a Chinese company in the Central Highlands provinces of Dak Nong and Lam Dong (septel). The concession was granted despite the lack of perceived benefit to the local, affected communities and serious concerns about China's environmental track record. Nonetheless, our contacts were careful to specify that while Vietnamese people do not feel threatened by the ethnic Chinese communities that have been living in Vietnam for generations, many have serious misgivings about the possible influx of 10,000 Chinese laborers and the additional influence that he thought that this might give China in Vietnam's affairs. China has pushed the countries of Southeast Asia to accept investment staffed by large numbers of Chinese workers in what might be seen as a new form of colonialism, Ly said, just across the border with Cambodia many ethnic Chinese, only recently granted Cambodian citizenship, are buying up land butting up against Vietnam. 'What pressures will China put on the GVN once ten or twenty thousand Chinese laborers are in the sensitive Central Highlands region?' Ly asked. (Comment: Both domestic Vietnamese bloggers and overseas Vietnamese organizations critical of the GVN have focused on Chinese in the Central Highlands, posting photos of Chinese laborers and Chinese language signs in Lam Dong Province. More recently, this issue broke into the mainstream press with articles decrying the number of Chinese workers engaged in infrastructure projects in HCMC. End comment.) GVN Approach to the Media Bodes Ill for Civil Society -------------- -------------- ¶4. (C) For his compatriots, the air was rich with irony when Dr. Ly, once deputy director of the HCMC Department of Planning and Investment and now a private sector investment consultant, proclaimed that red-tape and accompanying corruption are still the big unresolved problems for the country. The GVN's reluctance to take serious action against corruption left Ly wondering "where is the country going?" Mr. Nghia added that "intermediary costs" of doing business in Vietnam are high, and the endemic corruption, delays, bribes, and bureaucracy are strangling growth. Although the people resent corruption, no one in government is effectively reducing it. Moreover, Vietnam still lacks the necessary enforcement mechanisms, deterrents or even a functioning judicial system. ¶5. (C) We should watch how the GVN treats the media, said Ly, adding that so long as the media is systematically managed by the GVN it cannot function as a watchdog against corruption or even raise questions about how the government is doing its job. You only need to look at the replacement of Tuoi Tre and Thanh Nien editors (ref B) to see the government's hand in managing the media. In the same, most HCMC civil institutions face challenges as they struggle to grow and develop. (Comment: Despite repeated prompts Mr. Nghia, Vice President of the HCMC Bar Association, would not allow himself to be drawn into this topic or comment on the Bar's ongoing evolution or its sometimes trying relationship (ref C) with the GVN. End comment.) Uncertainty About the Pace, Not Direction of Reform -------------- -------------- ¶6. (C) As Vietnam increasingly feels the effects of the worldwide economic crisis the country looks to the United States to take the lead on economic recovery, HCMC Stock Exchange Deputy Director Tra stated. This is especially important given Vietnam's dependence on exports to the United States and on Foreign Direct Investment (FDI) in the export sector. Although the GVN predicts GDP growth of 6.5% this year, Tra, Ly and Nghia all agreed 4% is more realistic. Tra pointed out that HCMC's real estate remains pricey, although the commercial real estate market has already declined. Banks continue to lend, and real risks lie ahead if non-performance loans becomes more common. Job creation will be the key to maintaining the growth targets, they agreed, and the GVN is concerned at the prospect of large numbers of laid-off urban factory workers returning to their countryside villages, though this is something that hasn't happened yet. ¶7. (C) Despite these concerns, all three were firmly convinced that Vietnam will continue the long grind of economic reform; whether the GVN decides to accelerate or slow further governance reforms and economic integration given the new worldwide economic climate is still a matter of debate, they agreed. Dr. Ly offered that Vietnam must continue to "tidy-up its economy" by decreasing the number of state-owned enterprises (SOE),and speed up bureaucratic reforms. Mr. Nghia thinks reform will slow, as the GVN continues supporting the ailing state sector. Mr. Tra pointed out that many SOE remain but that interest is low in purchasing stakes in ailing companies. Some, like Vietnam Airlines and Saigon Tourist appear to be profitable, but their financial situation is not transparent. Mr. Tra added that it is time to rethink Vietnam's entire growth strategy, stressing that the government needs to let businesses make decisions on their own. While the pace of reforms may slow or even come to a halt, all three contacts agreed, "there is no going back to the old days." Comment -------------- ¶8. (C) Because these three contacts have decades of high-level experience both in and out of government, their views are probably the closest approximation of what HCMC decision-makers are currently thinking about. During our discussion, debate was lively, and our contacts freely exchanged verbal jabs when disagreeing on particular points. These political and economic insiders hold differing views on the GVN's next steps in economic integration and governance reform, while sharing concerns about the pervasive influence of China. End Comment ¶9. (U) This cable was coordinated with Embassy Hanoi. FAIRFAX