The road to riches

PUBLISHED : Thursday, 07 December, 2006, 12:00am
UPDATED : Thursday, 07 December, 2006, 12:00am

Over the next few days, a delegation of Japanese investors will travel through Guangdong and Guangxi to cross the Vietnamese border by road. They will continue their travels through the mountains and rice via the historic Highway One to Vietnam's capital, Hanoi, crossing the heart of a region finally emerging from years of war, poverty and neglect.

For generations, life has barely altered in northern towns and villages, despite 20 years of stuttering reforms that have seen incomes in cities such as Hanoi and Ho Chi Minh City rise rapidly.

Now, as habitual Sino-Vietnamese suspicions now ease and Vietnam's economic reforms and infrastructure upgrades bear fruit, the northern provinces find themselves at the forefront of East Asia's rapid integration.

Foreign investment is starting to flood in as electronics giants such as Canon, Fujitsu and LG complete factories. Developers are even eyeing northern Vietnam as a manufacturing base to tap the China market - a move unthinkable just a decade ago.

Back then, it would have taken at best five bumpy and dangerous hours to navigate the 150km road from Hanoi to Lang Son, a two-lane track barely altered since it was built by French colonialists more than a century ago. If you then managed to clear the traditionally sensitive border, it would take another day to reach Nanning , in Guangxi province. Container trucks now make the trip in about six hours.

The World Bank has funded more than US$800 million in upgrades to Vietnam's road network over the past five years. The improvements are particularly marked in the north. For much of the two-hour trip to the border from Hanoi you ride a motorway with three lanes in each direction.

From its high embankments, signs of change are easy to spot in the sea of ancient paddy fields and dykes that make up the Red River Delta. As the highway sweeps through Bac Ninh province outside Hanoi, on one side sit the factories and luxury apartment developments of the Tu Son industrial park. On the other, winter crops of cabbages, corn and onions stretch towards the horizon.

The Japanese delegation will travel south from the border in circumstances vastly different to those of earlier foreign excursions.

Surrendering French troops were marched down Highway One in 1954 after Vietnamese communist revolutionaries ended French colonial rule at Dien Bien Phu. In early 1979, Chinese forces backed by 200 tanks surged down Highway One as cold war tensions turned inward in communist East Asia. Deng Xiaoping had ordered his troops to teach his former Vietnamese comrades 'a lesson' over their invasion of Cambodia to drive out the Maoist Khmer Rouge.

Sino-Vietnamese relations were formally restored in 1991, but suspicion and rivalry over land and sea borders continued to simmer. Now, however, officials on both sides are talking of a new era in relations as China's economic and diplomatic relationship with Southeast Asia evolves rapidly.

China last year usurped the US - another former enemy - as Vietnam's main trade partner and Beijing is keen to bolster industrial, transport and trade links into northern Vietnam. President Hu Jintao used his visit to Hanoi last month to agree to development plans that are expected to see soft loans to upgrade Vietnam's rail links with China via Lang Son, Lao Cai and the port of Haiphong.

Two-way trade is expected to top US$9 billion this year as Chinese consumer and engineering products head south and Vietnamese tropical fruit, nuts and spices head north. Vietnam is now among the world's leading exporters of lucrative commodities such as cashew nuts, pepper and coffee.

'We know China is eyeing a much bigger trade in raw materials,' said one Asian diplomat. 'But it's still early days for them in Vietnam in terms of investment and they're going to face some stiff competition.'

The presence of the Japanese delegation highlights the fact Tokyo is keen to expand trade, even as its companies take the lead in foreign investment in the north. Last year, Hanoi leaped ahead of Ho Chi Minh City, its commercial big brother, in the foreign investment stakes, snaring an estimated US$1.6 billion of US$6.2 billion worth of deals nationwide.

Officials at the Japanese External Trade Organisation (Jetro) said Japanese investment inflows had more than doubled in the first nine months of this year compared with the same period last year, reaching US$547 million.

They describe rising optimism about the north's potential which goes beyond improved transport links - pointing to its diligent and literate population and its location at the heart of a future free- trade area linking China with the 10 markets of the Association of Southeast Asia Nations (Asean).

'Vietnam's strategic location between China and Asean is also a great advantage, particularly since these two huge markets have been actively strengthening trade and investment ties,' said one Jetro official.

Then there is the fact that the wages of skilled factory workers - about US$50 a month - are lower than in south Vietnam and southern China. Already Canon is exploiting the comparative advantage, exporting printers to mainland China from its factory outside Hanoi.

Japanese officials also confirm a wider strategy. 'Japanese investors' increasing interest in northern Vietnam is to avoid the so-called 'China risk',' the official said, describing the region as a hedge for investors worried about yuan appreciation and any rise in anti-Japanese sentiment.

Jonathan Pincus, the respected chief economist at the UN Development Programme in Hanoi, said he was watching the northern trend with great interest.

Although evidence was still largely anecdotal, he said: 'It's safe to say that there is a boom under way in terms of foreign investment in the north as it starts to catch up with years of growth in the south ... it definitely seems to be game on.'

Smaller foreign firms in the the region, which are usually attracted to the more free-wheeling south, are also setting up factories in the north, lured by the relatively cheap labour, improved transport links and a rising consumer market.

Mr Pincus warned of enduring complexities in Vietnam's economic relationship with China, however. Vietnamese and foreign firms were suffering under a flood of cheap Chinese manufactured products - a trend that could be expected to grow. 'Vietnam is concerned about how it is going to compete in the longer run,' he said.

Fears of competition with a giant neighbour are also clouding optimism on the frontier at Lang Son, an area until recently dogged by poverty, border tensions, low investment and smuggling.

Provincial trade director Ha Hong speaks enthusiastically of the future, eyeing the completion of foreign-invested industrial parks and golf courses now being built. He also stresses that officials on both sides are now co-operating as never before.

'There is so much for us to be happy about,' he said. 'After years of plans and goals, we can see changes starting to happen before our eyes.

'Greater openness and greater trade is also going to mean greater competition ... and we know Vietnamese products are still of low quality. We also know we have to work on our human resources to develop our service industries, and this will take time,' Mr Hong said. It's a mantra common among the more ambitious Vietnamese officials and private businessmen.

At the border crossing, a dusty strip between two mountain outcrops, it's capitalism in the raw. Traders and porters jostle among lines of container trucks from Ho Chi Minh City. Buffalos wander among piles of Chinese electronic goods and Vietnamese shoes. Hard lessons are already being learned.

'Overall, business here is growing all the time, day by day,' said Tran Van Thuan, who travelled from a neighbouring province two years ago to rent a market stall selling household goods within a 100 metres of China.

'But that doesn't mean more profits just like that ... The problem is more and more people are trying to do business, so you constantly have to think how to compete.'