On The Cover/Top Stories
Ho Chi Money Trail
Tim Kelly, 09.18.06



Vietnam lures foreign investment partly because it's not China. That appeals to South Korea.

Dong Chul Park is planning a big party in Ho Chi Minh City. The chief of the Vietnam unit of South Korea's Kumho Engineering & Construction is booking Chinese dragons, hiring caterers and looking at dancing troupes to entertain the country's political elite at a bash next month. The occasion: the groundbreaking for a 32-story complex that includes a shopping mall, luxury apartments, office towers and a five-star hotel. When Asiana Plaza is completed in 2009 at an estimated cost of $167 million, it will be the biggest building in Vietnam. It will also be a very conspicuous symbol of corporate Korea's rush to profit from Southeast Asia's most vibrant economy.

At the party Park is hoping to celebrate something else with his Vietnamese guests: Vietnam's entry into the World Trade Organization, which the WTO is expected to approve at its Oct. 10--11 meeting. That, Park believes, will accelerate the rush of foreign investors into Vietnam and provide Kumho with a ready supply of tenants. "It's the proper time to invest," Park says in his office on the 29th floor of the Saigon Trade Center, which looks down on a market hawking fake goods, tacky souvenirs and trinkets that will soon be torn down to make way for his company's new building.

The Koreans are not the only big investors in Vietnam. Money is pouring in from Taiwan, Japan, Singapore and the U.S. In fact, since 1998 Taiwan has been Vietnam's biggest investor, contributing 16% of the money pumped into the country, with Singapore committing 15%, Japan 12% and South Korea 11%. Korean projects have ranged from a shipyard built by Hyundai Shipbuilding that is Southeast Asia's largest to an LG Electronics factory that is cranking out washing machines and other appliances. And in the first five months of this year South Korea has stepped up its investment, contributing a fifth of the more than $2 billion pulled in by Vietnam. The leaders of these countries and 15 others will get a firsthand look at the booming economy when Vietnam hosts the Asia-Pacific Economic Cooperation conference in mid-November.

Much of Vietnam's success in wooing foreign money, says Ho Chi Minh lawyer Sesto E. Vecchi, has come at the expense of China. By tapping the disquiet among Asian and Western businesspeople about investing too much in Asia's emerging superpower, Vietnam has steered countless prospects its way. "Vietnam has been very subtle--but very effective--in capitalizing on that," says Vecchi, an American who worked as a lawyer in Vietnam in the 1960s and returned a decade ago to revive his practice, Russin & Vecchi. "Companies that have one or two factories there don't want to put a third or fourth there."

Sang Jun Ly--the chairman of Golden Finance Group, which is winning business in Vietnam by underwriting the privatization of state-owned companies--sees this dynamic playing out. "China is a big country, and they think that they are the center of Asia," he says. "The problem is that Japan and Korea don't recognize it as the boss.'' Because of his name, Ly has an easier time than most getting a foot in the door in Vietnam. He says he's a descendent of Vietnam's Ly dynasty, which expelled Chinese invaders and united the country a thousand years ago. The Ly clan was toppled in 1226 and some of the survivors escaped to Korea.

China is now South Korea's biggest export market and the number one destination for South Korean investment, and that makes some officials in Seoul feel edgy. Without the clout of Japan or the U.S. to shove back when pushed, South Korea is happy to have an alternative to China both as a production base and market for its products.

At the same time Seoul has quietly given up trying to persuade companies to invest at home, an appeal that executives, faced with rising wages and powerful unions, often ignored anyway. Instead, says Nam Shik Shin, a senior official at the Korea Trade-Investment Promotion Agency, the emphasis is shifting to keeping Korean companies competitive, and if that means they go to Vietnam, so be it. "If they cannot survive if they build new sites here, it is better for them to move to another country," says Shin in his Seoul office, across the street from the headquarters of the nation's largest automaker, Hyundai Motor. Indeed, Hyundai, a company that has long battled militant unions, is entering the Vietnamese market through a joint venture with the Vietnam Automobile Industry Corp.

All the Korean investment is also bringing lots of Koreans, to manage the factories, oversee the real estate and find more deals. Already there are 30,000 Koreans living in Vietnam, the second-biggest group after the Taiwanese, according to Chang Keun Lee, the chairman of the Korean Chamber of Commerce & Industry in Vietnam. Ho Chi Minh is home to more than half of the Koreans who staff the 1,000 Korean companies operating in Vietnam, and 150 Korean restaurants and more than a dozen supermarkets there cater to the expats. (Korean farmers also come to Vietnam--to look for brides. As many as 5,000 Vietnamese women leave for South Korea every year, Lee reckons. "Our culture and history are very similar.'')

Korean investment started with factories, but as Kumho's project shows, real estate is drawing lots of cash. Most property in Vietnam is locked up in state hands, beyond the reach of private investors. So available land can cost up to $5,000 a square meter, according to Peter Ryder, the chief executive and joint founder of Indochina Capital, a Vietnam investment firm. That's akin to what a developer might shell out in Manhattan. "Getting land, period, is very difficult; getting land at a reasonable price, supremely difficult," he says.

Rents are high, too. Kumho's Park, who has been in Vietnam for 15 years, points out that Diamond Plaza, an office-and-retail complex that he helped develop for Seoul's Posco Engineering & Construction, now charges tenants $37 a square meter a month, a figure that he says is higher than back home. Demand for housing is also huge, Ryder says, estimating that as much as 95% of Vietnam's 83 million people live in substandard accommodations. "We are just at the ground floor of the residential boom that's going to occur here," he predicts.

The appetite for land is also spurring demand for Vietnam's state-owned companies. Hanoi has privatized around 2,000 outfits and expects to sell another 2,000 by the end of 2008. While these firms leave lots to be desired in terms of management and the quality of their plants, they have one very redeeming quality: They often own land in prime locations.

The one issue that might slow investment from South Korea and elsewhere is corruption. Bribe-taking is rife, warns Frederick Burke, a managing partner in Ho Chi Minh City at law firm Baker & McKenzie. An annual corruption-perceptions index compiled by Transparency International puts Vietnam in 107th place, tied with Zimbabwe, Belarus and Zambia at a score of 2.6 (a "10" denotes a country free of corruption). Its score is unchanged from 2001. "It's so pervasive, and now it's hitting the private sector, too," Burke warns. Recently, he says, he heard of a real estate broker who paid $7,000 in kickbacks to four employees of a client to win a $20,000 lease contract.

At least for now, Kumho's enthusiasm for Vietnam is undimmed. Apart from Asiana Plaza, the company is preparing to spend $300 million on a tire factory in Binh Duong province, close to Ho Chi Minh City. That commitment, Park says, will mean that Kumho has more money invested in Vietnam than anywhere else, surpassing China. That, too, should be something to celebrate next month.

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