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Cablegate: Vietnam Econ Highlights: Gvn Sets Sights On Lower Targets,

VZCZCXRO9436
PP RUEHCHI RUEHDT RUEHFK RUEHHM RUEHKSO RUEHNAG RUEHNH RUEHPB
DE RUEHHI #0475/01 1150823
ZNR UUUUU ZZH
P 240823Z APR 08 ZDK
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC PRIORITY 7690
INFO RUEHHM/AMCONSUL HO CHI MINH 4636
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 02 HANOI 000475

SIPDIS

SINGAPORE FOR TREASURY
TREASURY FOR SCHUN
USTR FOR DBISBEE

E.O. 12958: N/A
TAGS: ECON ACOA ECPS EFIN EIND ETRD PGOV VN
SUBJECT: VIETNAM ECON HIGHLIGHTS: GVN SETS SIGHTS ON LOWER TARGETS,
U.S. LOSES TOP INVESTMENT SPOT, SOES TOLD TO SPECIALIZE

REF: Hanoi 457 (Vietnam Investment Undeterred)

HANOI 00000475 001.2 OF 002


1. (U) This cable is part of an ongoing series on developing
economic stories in Vietnam.

GVN ABANDONS GROWTH AND INFLATION TARGETS
-----------------------------------------

2. (U) Lower-than-expected growth and higher-than-expected inflation
and trade deficit figures are forcing the GVN to revise its
optimistic 2008 forecasts. On April 22, the National Assembly
agreed to a GVN proposal to reduce the growth target to 7 percent,
from the old 8.5-9 percent target. (Note: The GVN legislates its
economic targets every year.) Planning and Investment Minister Vo
Hong Phuc said that the GVN also intended to set the inflation
target under 12.6 percent (the 2007 level), a move that would
recognize that the GVN has abandoned its longstanding target of
keeping inflation under GDP growth. The legislature said, however,
that it was keeping the poverty reduction target at 11-12 percent
from 14.75 percent. GDP in the first quarter of 2008 grew at an
estimated 7.4 percent, while inflation rose to 9.19 percent. Over
the same period, the trade deficit hit $11.1 billion, sparking
concerns that it will exceed $20 billion this year.

U.S. RELINQUISHES TOP INVESTOR SPOT TO CARIBBEAN TAX HAVEN
--------------------------------------------- ---

3. Our reign as Vietnam's top investor in 2008 lasted all of three
months (Reftel). By April 24, the British Virgin Islands (BVI) had
$2.1 billion in approved investments in 11 projects, relegating the
United States to second place tie with Malaysia, with both at $1.3
billion in approved investment. The latest investment numbers also
show that Vietnam has approved $7.2 billion in investment so far
this year, a 53 percent jump from the same period last year,
according to the Ministry of Planning and Investment. Foreign
investors made commitments equal to $21.3 billion in 2007, an
increase of 78 percent from $12 billion in 2006.

AUTO IMPORT TARIFFS GO UP AGAIN
-------------------------------

4. (U) On April 21, the GVN again raised import tariffs on vehicles,
all-but-undoing tariff reductions introduced in 2007. The new 83
percent tariff rates, up from the last hike to 70 percent announced
in March, should benefit locally-made vehicles, a field that
includes Ford and GM. Sales of local models were up 300 percent in
the first quarter of 2008, according to press reports. Industry
executives told Embassy Hanoi that the tariff decision was a "mixed
bag," because it helped with their local production but at the
expense of their ability to import finished models, whose sales have
also exploded. According to local reports, car imports in the first
quarter of 2008 totaled $293 million compared with $523 million in
all of 2007. Concerns about the trade deficit, the inability of the
infrastructure to absorb more vehicles, and the optics of roads
clogged with ostentatious luxury cars are all said to be driving a
part in the decision-making process.

PM TELLS SOES TO FOCUS ON CORE BUSINESSES
---------------------------------------

5. (U) Prime Minister Nguyen Tan Dung has told Vietnam's state-owned
enterprises (SOEs) to shed speculative business activities and
concentrate on their core mandates. In an April 1 meeting, PM Dung
chastised top executives of large SOEs for chasing speculative
projects that overheated the real estate market and misused
available investment capital. The new policy is a reversal of
several 2007 directives that encouraged SOEs to diversify in order
to prepare for competition with foreign businesses. Vietnam's SOEs
are believed to have from 30-40 percent of their capital in non-core
activities, with the likes of PetroVietnam heavily involved in hotel
management, real estate and banking, and shipping company Vinashin
in breweries.

PROVINCES MOVING AHEAD WITH E-GOVERNMENT
--------------------------------------

6. (U) Microsoft signed an agreement with northern Lao Cai province
on April 9 to help it set up an e-government system. Microsoft will
supply the province with advanced e-government solutions and support
to transform its current website (http://laocai.gov.vn) to provide
improved channels for those wanting to access public information and
services, including foreign investors. E-government factors high on
the GVN's agenda for administrative reform, and Lao Cai is already
one of the highest ranking provinces in the Vietnam Competitiveness

HANOI 00000475 002.2 OF 002


Initiative's Provincial Competitiveness Index (PCI), in part based
on the accessibility and user-friendliness of its website.

VIETNAM WORKS TO DEVELOP TONS OF STEEL
-------------------------------------

7. (U) Work has begun on what will be Vietnam's largest steel
factory. The Nghi Son Steel Cast Iron Factory will have an annual
capacity of 2.25 million tons of steel with a domestic capital
investment of $500 million. Work on the first stage of the factory,
located in northern Thanh Hoa province, is expected to be completed
by the end of 2009, producing 750,000 tons of steel per year. The
company will begin work on the factory's second stage in early 2010.
Nghi Son is also where Vietnam will soon start building the
country's second oil refinery.

SHIPBUILDING INDUSTRY DOUBLES PROFITS
-------------------------------------

8. (U) The Vietnam Shipbuilding Industry Group (Vinashin) announced
2008 first quarter revenues of $318 million, a year-on-year increase
of 108 percent. In the first three months of the year, Vinashin
built 50 large vessels ranging from 4,000-105,000 DWT as well as
dozens of smaller vessels for private use and maritime transport.
Vinashin is now one of Vietnam's largest employers, with a workforce
of 78,500 (including 7,000 added thus far in 2008), and the world's
fifth largest shipbuilder, according to Fairplay, a UK-based
international shipping magazine.

MICHALAK

1

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