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Cablegate: The Deputy Secretary's Visit to Hcmc: Challenges And

This record is a partial extract of the original cable. The full text of the original cable is not available.




E.O. 12958: N/A

1. (SBU) Summary: During his visit to Ho Chi Minh City (HCMC) on
May 6, the Deputy Secretary focused on the economic challenges and
opportunities that lay ahead for HCMC, Vietnam's economic and
financial locomotive. The U.S.-educated Vice-Chairman of HCMC's
People's Committee told the Deputy Secretary that the city
administration was focused on four core issues: shifting the
economy from manufacturing to hi-tech and services, managing
burgeoning environmental and infrastructure demands, improving
public service efficiency, and upgrading the city's education
system. While some Vietnamese feared the implications of WTO
accession and international economic integration, foreign
competition has been good for HCMC and will be encouraged, the
Vice Chairman affirmed. To underscore this point, the Deputy
Secretary participated in a license presentation ceremony for a

new U.S. environmental services investor and toured a new U.S.
software developer headquartered in HCMC. Dr. Nhan's leadership
and reform-orientation help explain why HCMC -- as well as other
neighboring provinces with the same mindset -- can grow at up to
15 percent per year, while others languish. End Summary.

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2. (SBU) During a visit to HCMC on May 6, the Deputy Secretary met
Nguyen Thien Nhan, Vice-Chairman of the HCMC People's Committee,
to discuss the development challenges facing the city -- Vietnam's
economic engine. (Note: With roughly 15 percent of the
population, HCMC and its neighboring provinces account at least
for 36 percent of GDP, 34 percent of GVN tax revenue and 42
percent of the country's total USD 26 billion FDI investment. End
note.) Opening the discussion, Nhan said that HCMC's rapid
development -- 10 percent annually over the past 15 years -- has
brought with it many public administration challenges. The city's
economy doubles in size every seven years, but adds another
million inhabitants in the process. HCMC was built for no more
than 2.5 million persons, but now has at least 6 million. Nhan
told the Deputy Secretary that city planners anticipate that the
city will have 9 million inhabitants by 2020. City managers
understand that they must move quickly to expand transportation
and environmental infrastructure to handle increased population
density, lest infrastructure shortcomings become a drag on growth.
The city also must improve its management of land allocation to
ensure that land is more readily available for infrastructure
projects, business and urban green space.


3. (SBU) Nhan said that HCMC's rapid growth means it can no longer
compete other provinces on the basis of cheap land or low wage
costs. To continue to grow, HCMC must develop higher paying jobs
in the services and high-technology sectors. This, in turn, means
the city must upgrade education delivery so that HCMC has an
adequate talent pool to feed the hi-tech and services sectors.

--------------------------------------------- ------

4. (SBU) Nhan acknowledged that many local businessmen are nervous
over the prospect of increasing foreign competition, particularly
considering Vietnam's drive to join the World Trade Organization
(WTO). They fret they only have 20 years of private sector
experience -- Vietnam only began economic liberalization in 1986 -
- and will not be able to compete with foreign companies that have
been competing for "200 years." The Deputy Secretary noted that
Microsoft was built within those 20 years; being a newcomer in
business is not an obstacle to Vietnamese international

5. (SBU) The Deputy Secretary emphasized that U.S. business can
play a catalyzing role in Vietnam's services sector, particular in
financial services, energy, telecom and distribution. The service
sector is the "connective tissue" of a nation's economy. More
efficient delivery of services translates into higher economic
growth. Japan, which has a strong manufacturing sector but a weak
services sector, shows how inefficiency in the services sector can
retard growth, the Deputy Secretary emphasized.

6. (SBU) Nhan concurred, noting that HCMC's experience has been
that the education and health care sectors have improved with
foreign investor participation. In contrast, Vietnam's state-
monopolized telecom and transportation sectors languish. While
business may worry, over time, Vietnam's service sector will open
to foreign investors and the share of state owned enterprises
(SOEs) in HCMC's economy will drop from the current 42 percent to
30 percent by 2020. To drive home this message to the assembled
senior city administrators and local media, Nhan switched to
Vietnamese, stressing that foreign competition improved the
overall quality of service for the HCMC's residents.

7. (SBU) The HCMC Vice-Chairman said the city has been trying to
assist small business to make the transition to an internationally
competitive market. While it cannot control the lending policy of
banks, the city created a USD 3.5 million fund for concessional
loans to small businesses in sectors of particular importance to
the city, such as waste management. The city also has organized
classes for entrepreneurs and small businesses on the challenges
and opportunities of globalization. The city has been providing
concessional loans to small manufacturers to help them relocate
from the city center to industrial parks, where industrial
pollution can be better managed and the businesses become more
efficient. Over the past two years, over 1,500 businesses have
been relocated, the Vice Chairman said.


8. (SBU) In response to a question from the Deputy Secretary, Nhan
said that development planning is a two-way process between Hanoi
and the provinces. HCMC has the authority to license any domestic
investment, no matter how large. It also can license any foreign
investment project up to USD 40 million; larger investments are
approved in Hanoi. More generally, although the Ministry of
Planning and Investment in Hanoi is responsible for setting
Vietnam's broad economic orientation and objectives through the
country's five-year plan, provinces have input in the drafting
process. Provinces also can work through their legislative
delegations to modify the MPI's draft as it moves through the
National Assembly approval process. Finally, provinces can work
with Hanoi to adjust the plan's targets to meet a province's
individual needs.


9. (SBU) The themes of foreign investment catalyzing development
and improving the lives of Vietnamese citizens continued in the
license presentation ceremony for the Lemna Corporation's USD 36
million solid waste management project that followed the courtesy
call. In his remarks, Nhan emphasized that the city appreciates
the role that the Minnesota-based Lemna Corporation will play in
solving a pressing environmental challenge. Speaking in
Vietnamese in front of the assembled senior city staff responsible
for the project, Nhan stated that if there were a problem in
implementation, he would get involved.

10. (SBU) The Deputy Secretary also visited Glass Egg Digital
Media, a U.S.-invested video game and art production facility, to
examine the challenges and opportunities of the technology sector
in HCMC. Chief Operating Officer Charles Speyer described how the
company develops software and graphic design products for such
companies as Mattel, Atari and Microsoft. During a demonstration
of the company's newest product, design work for a game for
Microsoft's "X-Box" system, Speyer noted his staff had found
bootleg copies of the game on the streets of HCMC the very day it
was released in the United States. (He noted that Microsoft had
not yet sent them a promised legal copy of the final product.)
While this underscored the IPR issues with which Vietnam continues
to grapple, Speyer was generally positive about HCMC hi-tech. He
cited the abundance of skilled, young labor, as well as continued
improvements in infrastructure, as evidence of the city's ability
to compete.

11. (SBU) Comment: Dr. Nhan's frankness and no-nonsense demeanor,
his understanding of the international economic environment and
his openness to foreign investment demonstrated why he is one of
our most important HCMC government interlocutors and one of the
city's most progressive leaders. He clearly understands the
importance of reform to Vietnam's continued growth and
development. It is this vision and leadership that helps explain
why HCMC and some neighboring provinces are growing quickly -- up
to 15 percent annually -- while others are not. Political leaders
in the HCMC area are determined to create a government culture
more responsive to private business needs. These same leaders
also have been relatively progressive in handling religious
freedom and human rights issues. HCMC leaders such as Dr. Nhan
seem to appreciate that financial and capital market reform and
strengthening of rule of law are needed to prevent growth from
sputtering, particularly in a WTO environment. However, they must
contend with calls from naysayers within the Communist Party who
fret that reform erodes the power and patronage that help them
control Vietnamese society. End Comment.

12. (SBU) Bio Note: Dr. Nhan has a background in engineering and
information technology, as well as economics. As a Fulbright
scholar, Dr. Nhan earned a Master's degree in public
policy/finance from the University of Oregon. He has taught at
the Fulbright Economics Teaching program in HCMC.

13. (U) List of Participants:

U.S. Side

The Deputy Secretary
Consul General Winnick
Ambassador Huhtala
Ambassador Wilson
Deputy Press Spokesman Ereli
Chris Castro, D
Christine Davies, D
Lisa Martilotta, D
Deputy Principal Officer Kenneth Chern
HCMC PolOff Rob Silberstein (notetaker)
HCMC ConOff Jocelyn Vossler (notetaker)
HCMC Pol/Econ Specialist Huong Lan Tran (interpreter)

Vietnamese Side

Nguyen Thien Nhan, Vice Chairman of the HCMC People's Committee
Le Hung Quoc, Deputy Director of the HCMC External Relations
Tran The Ngoc, Director of HCMC Department of Natural Resources
and Environment
Pham Hong Ky, Chief of the Southern Office of the Ministry of
Planning and Investment
Truong Van Lam, Chief of staff of HCMC People's Committee's Office
To Tu Uyen, Vice Chairwoman of the People's Committee of Cu Chi
district, HCMC

14. (U) This cable was cleared by the office of the Deputy



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