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Jul 7, 2007 Hong Kong investors looking to Vietnam By Olivia Chung HONG KONG - Capital flows to where the profits are. As taxation and production costs increase on mainland China, more Hong Kong enterprises are eyeing Vietnam for investment opportunities following the Southeast Asian country's accession to the World Trade Organization (WTO) in January. In order to capture the fresh business opportunities, Peter Woo Kwong-ching, chairman of the government-affiliated Hong Kong Trade Development Council (TDC) led a 17-member Hong Kong business delegation to Vietnam on June 18-21. The TDC delegation, with representatives from Hong Kong's clothing, jewelry, financial, logistics and electric appliance sectors, visited Hanoi before going to Ho Chi Minh City. In Hanoi, the delegation met with Vietnam Prime Minister Nguyen Tan Dung, who said overseas investment was an integral component of Vietnam's economic development and his government would provide favorable conditions for Hong Kong investors, particularly in the financial, banking, insurance, securities, shipping and manufacturing sectors. Earlier, the delegation was briefed by Vietnamese Minister of Trade Truong Dinh Tuyen and Vice-minister of Planning and Investment Nguyen Bich Dat on the latest developments in Vietnam, including laws recently introduced to create a more effective business environment in the country. Woo said Vietnam's competitive labor force and its competitiveness as a manufacturing base, particularly for garments and electronics, have drawn attention from Hong Kong businessmen. Trade between Vietnam and Hong Kong in January-September, 2006, grew 19.5% to US$2.1 billion. In the same period, Vietnam absorbed more than US$600 million foreign direct investment (FDI) from Hong Kong, which was the largest among all foreign investments in the country. Light-industry manufacturing and real estate, such as hotels and commercial and residential buildings, seem to be Hong Kong investors' favorites, jointly accounting for over 75% of Hong Kong FDI between 1998 and 2005, according to a TDC study on Vietnam. The study said that Hong Kong companies should consider investing there due to its growing access to the world's top trading nations, especially the US. Foreign investment in Vietnam continues to grow unabated. Last year, the country attracted a record US$10.2 billion. In the first five months of this year, the country attracted US$4.28 billion, 18.7% up from the same period last year. Its government expected up to US$20 billion to come in this year. In March, Vietnam's government said that the country's economy had expanded 7.7% in the first quarter, up 7.2% from the same period last year. Overall, the country's economy grew 8.2% last year, and its government is targeting growth this year of 8.5% Vietnam's deputy prime minister Nguyen Sinh Hung told the World Economic Forum on East Asia on June 24 that the country looks set to sustain economic growth of between 8% and 10% yearly till at least 2020. Hung said the country's economy is expected to double by 2010 from 441.6 trillion dong in 2000, and that will increase twofold by 2020. Dao Quoc Khanh, commercial consul of the Vietnam Trade Office in Hong Kong, said Vietnam's economic growth is sustainable as the communist country attracts more foreign investment with plans to cut taxes and amend laws such as enterprise law and investment law. He said the country has a cost-competitive labor force; the monthly salary of low-skilled labor is at least US$100, higher than the minimum salary level of US$70. "Of a total population of 86 million in Vietnam, 75% are youngsters who have received a better education, particularly those with a university degree can speak English, which can help solve the communication problem where foreigners are concerned," he said. Hong Kong-listed automobile equipment manufacturer Zhongda International Holdings is setting up its first overseas plant for the production of truck chassis and special purpose vehicles in a US$60 million joint venture with the state-owned vehicle manufacturer, Vietnam Motors Industry. "The Vietnamese government invites us to manufacture vehicles after knowing that we can make good value-for-money ones, which also can meet the standard requirement for vehicles in Vietnam," said Allan Kwok, executive director of Zhongda, which has been selling car maintenance equipment in Vietnam for more than five years. The annual production capacity of the joint venture is 5,000 buses, 20,000 framed chassis with engine and 10,000 bare chassis. The Vietnamese government intends to turn auto manufacturing into a pillar industry, and Kwok said the potential market for the automotive and parts industry is great. In Vietnam, vehicles including passenger cars are mostly second-hand or assembled there with imported parts. But the prices are not cheap and supplies aren't stable due to the necessity of importing part. "The market is huge for the first vehicle manufacturing company in Vietnam, Kwok said. Part of the reason is because transport companies seldom switch to other vehicle manufacturers once they make the first orders, he added. Zhongda is still talking with a provincial Vietnamese government about further tax cuts, such as tax holidays. The plant will be set up in the special economic zone (SEZ) covering China's Guangxi province and part of Vietnam. At present, taxes for vehicle assembling companies and vehicles manufacturers in Vietnam are 18% and 10% resepectively. One prime concern for Zhongda is the poor Vietnamese road system, but he said the government has promised to improve the national infrastructure. "A 'highway' in Vietnam can be a single-lane road for two-way traffic ... but the government has pledged to make improvements, for example: build an expressway in the SEZ. We hope it can start soon," he said. Another Hong Kong company, listed construction giant Chun Wo Holdings, is also in Vietnam, working on a multi-purpose property development project in Ho Chi Minh City. Eddie Yeung, director of Chun Wo, said the company invests in Vietnam due to the company's desire to diversify, the close proximity to China and the positive economic outlook. "The local partner we have been working with is great," Yeung said. "They have given us very useful advice on designing residential flats and consumer tastes in Vietnam. Our presale flats have attracted an enthusiastic market response," he said. "It's not easy to find a good local partner, so we are thinking of working with them again on any new projects," said Yeung, who described a good local partner as "a walking stick" for his company in exploring the new market. The demand for property development in Vietnam is strong, Yeung said. He and Kowk said the country is much like China in the late '70s and early '80s, with many opportunities, including a large, competitive lower-paid labor force, for investors to get the first slice of a potentially huge market. Olivia Chung is a senior Asia Times Online reporter. (Copyright 2007 Asia Times Online Ltd. All rights reserved. Please contact us about sales, syndication and republishing [Non-text portions of this message have been removed]
