Vietnam as the Next China

Communist Vietnam has had its own version of China’s market economy, called doi moi (renewal) for more than 20 years, almost as long as its big neighbor to the north, but it seemed as if its economy began to catch fire only this year.

Or, perhaps this was just the year that everybody began to take notice of a trend that has been building for some time. Obviously, several key events late last year focused the mind on Vietnam and its accomplishments.

Vietnam joined the World Trade Organization, then Congress approved Permanent Normal Trading Relations with the communist country. In November Vietnam hosted the annual meeting of the Asia-Pacific Economic Cooperation forum in Hanoi.

The successful summit, attended by President George W Bush, was a kind of coming out party for Vietnam years after the end of the war, sort of like the 1964 Olympic Games were for Japan, or what the 2008 Games are for China.

In addition to all of these institutional decisions, came the announcement that Intel planned to invest about $1 billion in building a semiconductor assembly plant and testing facility in Ho Chi Minh City, tripling its initial investment.

This was sort of like receiving the Good Housekeeping Seal of approval from the international business community for its reforms. People suddenly awakened to the fact that Vietnam has the second-fastest growing economy in Asia, after China.

It wasn’t always like that of course. Do moi languished in its early years, given lip service by the collective leadership but in fact held back by resistance from Communist Party dinosaurs.

Vietnam had no equivalent of China’s paramount leader Deng Xiaoping, who had the personal charisma and authority to push reforms past recalcitrant party elders – and to reignite reform after it stalled in the wake of the 1989 Tiananmen Square crackdown.

Gradually momentum began to swing toward the reformers, and it was certainly given a strong boost by former prime minister Phan Van Khai, who took office in 1997 and retired last year. He was also the first Vietnamese leader to visit the White House.

The US has been slow to appreciate the changes in Vietnam or to take advantage of its dynamics. Washington did not lift its embargo on trade with Vietnam until 1994 or establish full trading relations until 2001. It still retains restrictions on certain dual-use technologies, as it does with China.

Still, some American firms have already has some success. Prudential reportedly has garnered for itself a large share of the country’s insurance business. Banks are likely to want to enter Vietnam’s market when restrictions are lifted under WTO guidelines in April.

Of course, it is easy to be taken in by all of the hype and excitement surrounding Vietnam. Writes my old Asiaweek colleague Roger Mitton, now Hanoi bureau chief for the Straits Times:

“Potential investors fired up by the post-APEC raves should note that while the workforce is cheap and energetic, labor relations and quality control remain headaches for many foreign companies here.

“Much of the blame is put on the former communist command economy, effectively scrapped 20 years ago but still reflected in the attitude of many Vietnamese toward their work.

“A month ago, a tea grower told me that Vietnam was allowing its tea industry to go the same way as rice, with its reputation battered by lack of quality control. Now, buried in all the hype about APEC, came news that the coffee industry is suffering the same fate.”

Many of the businessmen who have actually lived and worked in Vietnam for many years now remind me of the veterans who slogged in the trenches in the early days of China’s opening.

Like their counterparts in China, they have plenty of “war stories” to tell about f creaky infrastructure, difficulties in repatriating profits, red tape, corruption and the sheer weight of petty bureaucratic irritations.

Yet those that stuck it out are now in good position to profit from Vietnam’s amazing transformation.