VZCZCXRO1799
RR RUEHCHI RUEHDT
DE RUEHHM #1276/01 3111155
ZNR UUUUU ZZH
R 071155Z NOV 06
FM AMCONSUL HO CHI MINH CITY
TO RUEHC/SECSTATE WASHDC 1732
INFO RUEHHI/AMEMBASSY HANOI 1212
RUEHBJ/AMEMBASSY BEIJING 0012
RUEHGZ/AMCONSUL GUANGZHOU 0017
RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUCPDOC/US DEPARTMENT OF COMMERCE HQ WASHINGTON DC
RUEHHM/AMCONSUL HO CHI MINH CITY 1823

UNCLAS SECTION 01 OF 03 HO CHI MINH CITY 001276 
 
SIPDIS 
 
USDOC 
SENSITIVE 
SIPDIS 
 
DEPARTMENT FOR EAP/MLS 
USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EINV EWWT PGOV VM
SUBJECT: DEVELOPMENT IN CENTRAL VIETNAM: A VISIT TO QUANG NAM, DANANG 
AND THUA THIEN HUE 
 
REF: 05 HCMC 1118 B) 05 HCMC 1270 
 
HO CHI MIN 00001276  001.2 OF 003 
 
 
¶1. (SBU) Summary: In a recent visit to the coastal provinces of 
Central Vietnam, Econoff discussed with area contacts the 
region's economic development, particularly infrastructure 
upgrades and its impact on attracting investment.  The region 
has yet to see a significant influx of foreign investment in 
non-tourist sectors of the economy, despite expectations 
following road and seaport upgrades.  There are indications, 
however, that China and Japan are planning large-scale 
investment in the region.  Despite infrastructure upgrades, 
human resource weaknesses and a lack of capital for domestic 
private investment continue to be some of the biggest challenges 
to the provinces' sustained economic growth.  End Summary. 
 
¶2. (SBU) EconOff visited Quang Nam and Thua Thien Hue provinces 
and the centrally-administered city of Danang in Central Vietnam 
September 18 - 20.  2005 GDP per capita is below the national 
average of USD 640 in Quang Nam (USD 390) and Thua Thien Hue 
(USD 500), while far above in Danang City (USD 1,015).  In 2005, 
the three provinces experienced above-average annual economic 
growth rates -- Thua Thien Hue at 11.3 percent, Quang Nam at 
12.45 percent and Danang at 14 percent -- in comparison to 
Vietnam's national growth rate of 8.4 per cent, according to 
provincial Departments of Planning and Investment (DPI). 
 
¶3. (SBU) An HCMC-based economist who works as a consultant in 
central Vietnam told EconOff that provincial growth statistics 
are inflated by the inclusion of infrastructure expenditures and 
do not reflect real rates of provincial economic growth, which 
he believes to be much lower.  Growth in central Vietnam is 
mostly generated by tourism projects and not the large-scale 
manufacturing the province's infrastructure upgrades were 
designed to attract.  The economist added that some high-ranking 
GVN officials fault Danang's Party Secretary, Nguyen Ba Thanh, 
for spending large amounts on infrastructure upgrades that have 
failed to generate investment. 
 
DIFFERING PATHS TO DEVELOPMENT 
------------------------------ 
 
¶4. (SBU) Planning and Investment officials were unanimous in 
their desire to see increased investment in Danang City and the 
provinces of central Vietnam.  Vice Director of Danang DPI Le 
Huu Duc admitted, however, that investment in non-tourism 
related projects in Danang has been slower than expected.  He 
hopes that further infrastructure upgrades, official development 
assistance (ODA), and the completion of the East-West corridor 
linking Burma, Thailand, and Laos to Vietnam (Ref B) will 
improve the region's prospects. 
 
¶5. (SBU) While meeting with representatives from the DPI of Thua 
Thien Hue, two different perspectives on the role of government 
in development emerged.  Both Phan Canh Huy, head of 
international economic cooperation at the Hue DPI, and Le Van 
Thu, Director of the Management Board of the Chan May - Lang Co 
Economic Zone, highlighted the natural advantages of the 
province as well as the positive impact that unfettered foreign 
investment can have on the province.  The two stressed the 
importance of the provincial government's role in improving 
infrastructure and providing a positive investment climate to 
attract investment, downplaying the role of central planning in 
specific project development. 
 
¶6. (SBU) Huy and Thu's comments contrasted with those of their 
superior, Le Dinh Khanh, Deputy Director of the Provincial DPI. 
His late entry to the meeting with EconOff silenced Huy and Thu. 
 Khanh echoed his colleagues' positive assessment of the 
investment potential of the province, then turned to a detailed 
description of how the provincial government was managing and 
planning individual projects, even highlighting his personal 
preference to have three cement plants in the province as 
opposed to the currently planned two.  Khanh then turned his 
attention to the United States, blaming the US for dioxin 
defoliation that allegedly is the cause of the lack of tourist 
visits to the western part of the province. (Note: the A Shau 
and A Luoi valleys were a key portion of the Ho Chi Minh trail 
and the scene of fierce fighting during the Vietnam War.  End 
Note.) He also criticized American firms for not investing 
heavily in the province and urged the USG to provide ODA for 
provincial infrastructure projects. 
 
¶7. (SBU) While Khanh in Hue stressed the importance of state-led 
development and investment, officials in Quang Nam Province have 
 
HO CHI MIN 00001276  002.2 OF 003 
 
 
a different approach, one that lets investors take the lead. 
For example, the GVN has given Quang Nam permission to negotiate 
build-operate-transfer (BOT) deals with foreign firms.  DPI Vice 
Director Truong Quanh Dung reported that a planned upgrade of 
the Chu Lai Airport will be the first BOT project negotiated by 
Quang Nam authorities. 
 
CHINA AND JAPAN TAKE AN INTEREST 
-------------------------------- 
 
¶8. (SBU) As part of Danang's ongoing push to upgrade its 
infrastructure, city authorities are working with a Chinese 
company from Guangdong Province to expand the capacity of 
Danang's port, known as Linh Chieu Seaport. The port, currently 
Vietnam's deepest, is 12 meters deep and is capable of 
supporting ships up to 50,000 deadweight tons (DWT) and handling 
five million tons of cargo annually.  Officials anticipate that 
the expansion project, which will be partially funded by ODA 
from the PRC, will allow the port to handle up to 10 million 
tons of cargo annually.  (Note: Danang port operates well below 
capacity at present, resulting in both longer delays and higher 
shipping costs than the overextended Ho Chi Minh City ports. 
Danang officials have long counted on the East-West Highway 
connecting Danang with northern Thailand to provide economies of 
scale for port operations.  End Note.) Danang contacts told 
EconOff that prominent Ho Chi Minh City businessman Vuu Khai 
Thanh is reportedly acting as intermediary for the Chinese 
government in the port project negotiations.  Thanh, a 
Vietnamese of ethnic Chinese background, founded Biti's, one of 
Vietnam's largest footwear companies. (Note:  In addition, 
Vietnamese media recently reported that the China Railway Sixth 
Group Ltd. signed a VND 1 trillion (USD 67 million) deal with 
the state-owned Vietnam Railway Corporation to upgrade Vietnam's 
rail network from Vinh in north central Vietnam to Danang.  This 
project is being funded by a preferential loan from the PRC. 
End note.) 
 
¶9. (SBU) A HCMC industrialist that leads the Vietnam-Japan 
Association and joined Prime Minister Nguyen Tan Dung on his 
recent trip to Japan told EconOff Japanese business is 
restructuring its investment in Vietnam, with roughly 20 percent 
going to the Danang area.  Some Japanese companies are looking 
to increase their presence in central Vietnam in order to 
benefit from the completion of the East-West corridor.  In 
addition, the Government of Japan (GOJ) plans to provide ODA to 
upgrade the corridor's road system as well as improve roads 
linking northern and southern Vietnam by way of Danang.  Our 
source said that the GOJ's upgrade of central Vietnam's 
infrastructure is reportedly a step in a strategic reorientation 
by Japan to shift investment from China to Vietnam. 
 
HUMAN RESOURCE AND CAPITAL ACCESS CONSTRAINTS REMAIN 
--------------------------------------------- ------- 
 
¶10. (SBU) Contacts in all three provinces stressed a lack of 
human resources and educational opportunities as a major 
impediment to further economic growth.  Nguyen Cuong, 
Vice-Director of the Danang chapter of the Vietnamese Chamber of 
Commerce and Industry (VCCI), reported that a recent survey by 
the EU ranked service standards in the city 2.5 out 5, 
highlighting the province's continued need for experienced 
managerial and service personnel.  Thua Thien Hue DPI Deputy 
Director Khanh said the province, a traditional center of 
learning in Vietnam and home to several universities, lacked the 
managerial and human resource capacity to compete on an 
international level.  Quang Nam province, home to 1.5 million 
people, currently has no colleges or universities.  There are 
plans to open a university in 2007 in Hoi An, Quang Nam's 
tourism hub. 
 
¶11. (SBU) Provincial planning and investment officials also 
cited inadequate access to capital as an additional impediment 
to private sector development in the region.  Quang Nam DPI Vice 
Director Dung and Thua Thien Hue Vice Director Khanh both blamed 
deficient investment capital on the lack of provincial financial 
institutions and hoped that foreign banks would enter the local 
market to fill the void.  Phan Canh Huy, head of international 
economic cooperation at the Hue DPI, added that local 
entrepreneurs lack the expertise to adequately package and 
defend their investment proposals, with the result that local 
banks are reluctant to support privately invested projects. None 
of the DPI officials cited preferential treatment enjoyed by 
state-owned enterprises in receiving loans from state-owned 
 
HO CHI MIN 00001276  003.2 OF 003 
 
 
banks as a culprit in the capital crunch. 
 
COMMENT 
------- 
 
¶12. (SBU) Officials in Central Vietnam, particularly in Danang, 
have spent the last few years heavily focused on improving the 
region's infrastructure, particularly transportation networks. 
However, they still are waiting for the new infrastructure to 
bring significant investment.  Authorities in Danang and Thua 
Thien Hue in particular seem to have an "if we build it, they 
will come" mentality and are short on other initiatives to 
attract investment, particularly much needed regulatory reform. 
And while they are concerned about human resource and capital 
access deficiencies, local officials did not spell out clear 
plans for how they would confront these problems. 
WINNICK