VZCZCXRO6554
OO RUEHDT RUEHPB
DE RUEHHM #0972/01 3021201
ZNR UUUUU ZZH
O P 281201Z OCT 08
FM AMCONSUL HO CHI MINH CITY
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5078
INFO RUEHHI/AMEMBASSY HANOI PRIORITY 3391
RUEHHM/AMCONSUL HO CHI MINH CITY PRIORITY 5307
RUCNARF/ASEAN REGIONAL FORUM COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/USDOC WASHDC PRIORITY 0088

UNCLAS SECTION 01 OF 02 HO CHI MINH CITY 000972 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MLS, USAID/ANE, EEB/TPP/BTA/ANA 
TREASURY FOR SCHUN 
SINGAPORE FOR TREASURY 
USTR FOR BISBEE 
USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EFIN EIND SOCI PREL VM
SUBJECT: VIETNAM'S EXPORTERS EXPECT TO GROW IN 2009, BUT MORE SLOWLY 
 
REF: A) HO CHI MINH 940, B) HANOI 1206 
 
HO CHI MIN 00000972  001.2 OF 002 
 
 
¶1. (SBU) SUMMARY: Most Vietnam watchers believe that the economy 
is largely shielded from the direct effects of global financial 
turmoil, but would be hurt by any significant decline in 
overseas consumer demand for Vietnamese exports.  Orders for 
most "value" products like low-cost apparel remain steady or are 
growing, albeit more slowly than in previous years, while demand 
has dropped precipitously for more expensive goods like 
high-quality furniture.  Producers of commodities like rubber 
and coffee have seen some export orders cancelled, pushing down 
the price paid to farmers.  Taken together, these factors will 
slow growth of Vietnam's exports in coming months and motivate 
producers to push the Government of Vietnam (GVN) to loosen 
monetary policy further and/or adopt other programs to support 
exporters.  End summary. 
 
Export Orders, a Canary in the Coal Mine 
---------------------------------------- 
¶2. (SBU) HCMC Economists are carefully watching exports, 
especially to its largest export market, the United States, to 
judge how Vietnam's economy will hold up next year.  The US 
$48.6 billion total value that Vietnam exported in 2007 is 
striking when compared with the country's US $71 billion GDP. 
Vietnam does import a significant volume of inputs for 
value-added processing and re-export (e.g., hardwood imported 
from the United States processed into furniture exported back to 
the United States) creating what some HCMC economists think may 
act as a natural balance of payments hedge against export 
declines.  They nevertheless expect that an export slowdown 
would slow Vietnam's growth, impact its current account balance 
and could even put pressure on Vietnam's currency. 
 
Weaker Demand and Production Constraints Slow Export Growth 
--------------------------------------------- -------------- 
¶3. (SBU) Overall, Vietnam's export growth continues, albeit more 
slowly than the brisk pace set in the early months of 2008. 
Vietnam's total exports in the first ten months of 2008 grew to 
US $53.8 billion, up 36.7 percent over the first ten months of 
2007, according to Vietnam's General Statistics Office (GSO). 
Despite this strong performance so far in 2008, exporters are 
concerned that orders for early 2009 are lower than expected. 
 
¶4. (SBU) Because the United States is Vietnam's largest export 
market and light manufacturing accounts for the majority of 
Vietnam's exports to the United States, several HCMC analysts 
say they consider orders for export to the United States to be a 
leading indicator of Vietnam's future economic health. 
According to the most recent U.S. Department of Commerce data, 
Vietnam's exports to the United States continue to grow, up 18 
percent compared to the first six months of last year.  Our 
informal survey of economic and trade officers posted at 
consulates in HCMC found that investors remain optimistic about 
exports to the United States on the whole.  For example, 
Taiwanese and Korean light manufacturing factories say that 
while furniture orders (from the US) are down 20 to 30 percent, 
low-end garment orders for early 2009 are "just fine". 
Production issues like poor infrastructure or rising labor costs 
are a bigger headache for FDI factories; according to one 
insider 110 out of 330 Taiwanese-invested garment/footwear 
factories in Vietnam have had strikes so far this year. 
 
¶5. (SBU) The Vietnam Association of Seafood Exporters and 
Producers' (VASEP) Le Van Quang told EconOff that seafood 
exports will finish the year on target at US $4.25 billion (up 
from US $3.76 billion in 2007), but fears the 2009 GVN target of 
US $5.3 billion will be difficult to reach. Quang said U.S. 
buyers in particular are asking to pay in installments or after 
they are able to sell the product, rather than at the time of 
shipment.  Domestic factors have also restrained export growth. 
Frequent power cuts and overloaded warehouses, roads and ports 
all limit VASEP members' ability to increase exports, Quang 
added. 
 
Orders for "Value" Goods Grow, Sales at the High-end Down 
--------------------------------------------- ------------ 
¶6. (SBU) More broadly, Vietnamese industrial organizations are 
seeing orders for high-end goods fall sharply, while orders for 
value goods continue to grow.  The Vietnam Textile and Apparel 
Association (VITAS) expects an export turnover of US $11.5 
billion by the end of the year, up 21 percent from 2007. 
Vice-chairman Pham Xuan Hong told Econoff that many member 
companies are actively (and successfully) shifting their 
production from high- or mid-priced apparel products to 
 
HO CHI MIN 00000972  002.2 OF 002 
 
 
low-priced product.  Hong said the industry expect another 15 
percent growth in exports for 2009. 
 
¶7. (SBU) Nguyen Cong Quyen, the Secretary General of the Wood 
and Forestry Products Association of Vietnam (HAWA) told Econoff 
that furniture exporters are being particularly hard hit by a 
downturn in orders.  HAWA members will export US $3 billion in 
2008, falling short of the US $3.5 billion GVN target.  The 
general manager of one high-end furniture company that 
manufactures furniture for five-star resorts and custom-ordered 
collections (one collection piece bookshelf sold for US 
$100,000) confided that their orders have dropped to virtually 
zero in early 2009.  While they did not have solid numbers, 
trade officials from Binh Duong Province, Vietnam's industrial 
heartland, said that low- and mid-priced furniture export orders 
are indeed down, but "only slightly" for early 2009.  Vietnam is 
the largest supplier of candles imported into the United States, 
but one of Vietnam's largest candle exporters told EconOff that 
post-Christmas orders from the United States had dropped by half. 
 
Falling Prices and Inflation Pinch Farmers 
------------------------------------------ 
¶8. (U) Vietnam's agricultural sector is feeling more immediate 
impact from the global downturn than its manufacturing sector. 
Producers and exporters are reporting that local prices for 
rubber, coffee, pepper, rice and seafood are all trending 
downward and stockpiles are building as global demand for 
commodities drops. 
 
¶9. (U) Representatives of the Vietnam Rubber Industries Group 
said that the local price of rubber sap has dropped almost by 
half, from US $3,400 (earlier in the year) to US $1780 per 
metric ton.  In response, stocks of rubber has have grown by 
almost two thousand metric tons.  The Vietnam Coffee and Cocoa 
association says that the local price paid for coffee has 
dropped by a quarter from US $2,110 (September) to US $1,570 
(October).  Pepper prices are similarly down by twenty-five 
percent and rice traders have seen prices fall as well (Ref A). 
 
¶10. (SBU) High input costs, increasing wages and ten months of 
tight monetary policy are further squeezing Vietnam's exporters, 
especially small and medium-sized enterprises without ready 
access to credit from state-owned commercial banks (Ref B). 
Increased wages and inflation on inputs hurt, several private 
sector managers told EconOff, but tight monetary policy hurts 
more because many of their state-owned competitors can get 
preferential loans from tight relationships with state-owned 
commercial banks (SOCB). 
 
Exporters Seek GVN Action 
------------------------- 
¶11. (SBU) Industrial associations are pushing for a range of 
government policies that they feel will help their members, such 
as a looser monetary policy, directed or subsidized lending for 
exporters and reduced import tariffs on raw materials used to 
produce export products.  Many managers, most privately but a 
few quite publicly, are calling for the GVN to ease up on its 
instinctive bias toward supporting state-owned enterprises 
(SOE).  Private sector rice exporters assert that the GVN should 
liberalize that industry so they can compete more effectively 
with SOEs (Ref A). 
 
Comment: 
-------- 
¶12. (SBU) In addition to slowing economies in their major 
markets, Vietnamese exporters will also face a headwind from the 
strengthening U.S. dollar, to which the Vietnamese dong is 
linked.  While there are undoubtedly tough times ahead for many 
Vietnamese exporters, those companies with a competitive 
advantage and inelastic demand (e.g., low-cost garments) are set 
to grow.  Vietnam's tight domestic credit environment and 
persistent inflation, and global financial turmoil mean that 
only the best privately owned Vietnamese companies will be able 
to borrow the money they need to expand.  End comment. 
 
¶13. (U) This cable was coordinated with Embassy Hanoi and the 
regional Financial Attache in Singapore. 
FAIRFAX