One World Insight Blog | Douglas "Las" Wengell

Welcome to the Global Economy Vietnam

Vietnam’s transition to a market-based economy, strong foreign capital investment, and net imports have led to inflation and trade and budget deficits. This in turn is putting pressure on its currency, the Dong. Vietnamese residents have responded by hoarding dollars and gold.

The State Bank of Vietnam has just done what Washington would like to see Beijing do: adjust its currency value, which is pegged to the U.S. dollar. Now, one U.S. dollar will buy me 18,544 dong, compared with 17,941 dong earlier in the week. In other words, exports are cheaper and as a visitor I am richer.

Don’t’ expect this to happen to neighboring China, Thailand or Indonesia. The enjoy strong foreign exchange reserve and trade surpluses. Their currencies are under pressured to rise, not weaken. And Beijing will do what it must to keep its economic engine growing.

Ayn Rand’s Shanghai on the Hill

Howard Roark, the protagonist in Ayn Rand’s Fountainhead, is a budding young architect. His challenge is to embrace bold, ambitious, future-oriented design from the self-generated well of creativity and ignore convention. This formed the basis of Rand’s libertarianism and influenced a generation of leader’s like Alan Greenspan, who put his faith not in central planning the marketplace. OK, at least he admitted before Congress that his worldview was not entirely correct.

The shimmering architecture of Shanghai got me thinking about Ayn Rand and Alan Greenspan. These buildings are not some Disneyland, or Las Vegas theme park. They are the psychic fabric of Shanghai, in perception and ethos, as well as the requisite urban infrastructure.  They are Shanghai. Here’s a city with attitude, like Beijing and Hong Kong. How unlike modern American urban architecture which, with some notable exception, has all but abandoned innovation for utility, banality over buttresses, functionality over form, mediocrity over majesty. Erase for a moment everything you know about the world and compare Shanghai architecture to America’s aging infrastructure, or JFK airport to Beijing International, and ask yourself who is aspiring and who is asphyxiating.

There’s bravado behind tarring down the old and creating something new. You’ll love Shanghai or hate it. But it’s something. It’s progress. It fosters innovation and creates new companies and new jobs. I laugh to myself when I think how long the new World Trade Center design took, or how the reconstruction of the San Francisco Bay Bridge is going on a decade. That just wouldn’t happen here.

America won World War II and has dominated the second part of the twentieth century. Good for us. But that was then and this is now. The world is changing; India and China are hungry and Americans overweight. “Only the paranoid survive,” said the founder of Intel. So if America is a company, what’s our new creation, our new product, our new skyline, our new marketing campaign, our employee training program, our new buildings, bridges, roads, trains and planes, our 2020?

If you don’t know where you are going, the saying goes, any road will take you there.

The Future of the Internet is in Mandarin

At least Eric Schmidt of Google thinks says so.

Half of all internet uses in the world use languages that have scripts other than Latin based. And so the tide turns to the emerging world. The regulatory body that governs domains said it would declare an end to the exclusive use of Latin characters.

Characters in Mandarin, Arabic, Korean and Japanese will be made available.

“China, Inc.”

China is booming. You have to behold to believe. The economy has been on a tare for thirty years. Construction is everywhere, 24/7.

You can feel the hum.

A new KFC opens every other day, a new power plant every week. It holds the largest foreign reserves in the world ($1 trillion dollars) and is the number one destination for foreign investment. Yet it joined the World Trade Organization only in the late 1990s.
By 2013, its economy will be 1/3 of world output. By this century, its economy will pass the US. At least that’s what some are saying. When you look around it’s hard to deny that this could very well happen.

One thing is clear. China’s ascendance is lifting the world, and that’s never happened before. And with it, political aspirations and global influence…
http://www.nytimes.com/2009/08/24/business/global/24global.html?emc=eta1

“We make nothing, we own everything” - The Rise of the Paper Entrepreneur

So said Gordon Gecko 25 years ago. Meanwhile, Geithner and Orszag recently testified to the Senate Appropriations Committee not long ago. There were echoes in the room:

“As great as the economy's immediate challenges are and have been, our country’s economic problems are also deeper and more long-standing.  For nearly a decade, typical American families had seen their incomes stagnate instead of rising steadily as they had for generations.  Much of the economic growth that we had experienced in the past decade was fueled by consumers and the Government running up large debts, aided by a financial system better at making short-term profits than managing long-term risks.  And as a country, we were failing to invest in education, new energy technologies, and basic research and development.”  http://www.ustreas.gov/press/releases/tg589.htm

Indeed, the financial sector that has been very entrepreneurial in the creation, sales and distribution of complex financial instruments in line with thirty years of “Washington Consensus” rhetoric and strong arming at the emerging markets – global monetization and open markets. There have been benefits and wealth creation. But on closer examination one must wonder where innovation ends and greed begins. Just take a look at corporate profits from the finance sector compared to all other parts of the American economy:

Treasure Secretary’s assessment of a “financial system better at making short-term profits than managing long-term risks” is unfortunately not a new insight.  

Every since the titans of Wall Street in the 1980s became rock stars, and the barriers between commercial and investment banking were lifted in the 1990s, and hoards of talented quants headed to banking rather than MIT and science careers, more than any other point in American history, the engine of American innovation has lionized the rise of what Robert Reich aptly calls “paper entrepreneurs,” intangible, financial products and services which are big on gimmicks and light on substance.

The most striking thing about former Labor Secretary Robert Reich’s prescient opinion piece below is that it was written in 1980 – yet its insights are just as relevant today thirty years on.

 

“The paper entrepreneurs are winning out over the product entrepreneurs.

Paper entrepreneurs — trained in law, finance, accountancy — manipulate complex systems of rules and numbers. They innovate by using the systems in novel ways: establishing joint ventures, consortiums, holding companies, mutual funds; finding companies to acquire, “white knights” to be acquired by, commodity futures to invest in, tax shelters to hide in; engaging in proxy fights, tender offers, antitrust suits, stock splits, spin-offs, divestitures; buying and selling notes, bonds, convertible debentures, sinking-fund debentures; obtaining government subsidies, loan guarantees, tax breaks, contracts, licenses, quotas, price supports, bailouts; going private, going public, going bankrupt.

Product entrepreneurs — engineers, inventors, production managers, marketers, owners of small businesses — produce goods and services people want. They innovate by creating better products at less cost.

Our economic system needs both. Paper entrepreneurs ensure that capital is allocated efficiently among product entrepreneurs. But paper entrepreneurs do not directly enlarge the economic pie. They only arrange and divide the slices. They provide nothing of tangible use. For an economy to maintain its health, entrepreneurial rewards should flow primarily to product, not paper.

Yet paper entrepreneurialism is on the rise. It dominates the leadership of our largest corporations. It guides government departments, legislatures, agencies, public utilities. It stimulates platoons of lawyers and financiers.

It preoccupies some of our best minds, attracts some of our most talented graduates, embodies some of our most creative and original thinking, spurs some of our most energetic wheeling and dealing. Paper entrepreneurialism also promises the best financial rewards, the highest social status.

The ratio of paper entrepreneurialism to product entrepreneurialism in our economy — measured by total earnings flowing to each, or by the among of news in business journals and newspapers typically devoted to each — is about 2 to 1.

Why? Our economic system has become so complex and interdependent that capital must be allocated according to symbols of productivity rather than according to productivity itself. These symbolic rules and numbers lend themselves to profitable manipulation far more readily than do the underlying processes of production.

It takes time and effort to improve product quality, exploit manufacturing efficiencies, develop distribution and sales networks. But through strategic use of accounting conventions, tax rules, stock and commodity exchanges, exchange rates, government largesse, and litigation, enormous profits are possible with relatively little effort.

When paper entrepreneurs look for solutions to America’s declining productivity and international competitiveness, they come up with paper remedies to stimulate large-scale capital investment: accelerated depreciation, tax credits, government subsidies, relaxation of antitrust laws. 

Product entrepreneurs focus on techniques for improving output: better quality controls, improved labor-management relations, more effective incentives for managers and employees, more aggressive marketing and sales.

If we are to increase the economic pie, we will need to redress the balance of entrepreneurial effort. Which strategies will stimulate more paper, and which more product?”

The Emergence of the “Beijing Consensus”

From the formation of the United States, Americans have always been paranoid about falling behind. The rise of Japan in the 1980s was the last example. Now it’s China.

As recently as 2008, when China was still an emerging economy eager to put its best foot forward for Western consumers, it lifted censorship, at least temporarily, on several Web sites before the Beijing Olympics. At the same time, it responded to pleas from U.S. and European politicians to cooperate on several other fronts. When China was seeking to join the World Trade Organization a decade ago, it accepted compromises to U.S. and European demands. With China’s rising clout, the West has less leverage over Beijing. At climate talks in Copenhagen, however, China blocked a comprehensive deal and refused to go beyond its earlier promises. Western diplomats complain about the way Beijing is dragging its feet on sanctions on Iran’s nuclear program and is propping up unsavory regimes across the world in its hunt for the natural resources to power its growth.

These days, China is no longer emerging. It has emerged — sooner and more assertively than had been expected before the wrenching global financial crisis, which badly damaged all the established industrial powers, from the United States to Europe and Japan. Its currency, the renminbi, is frozen at an undervalued level, and Internet controls are stricter than ever — even as Google threatens to leave.

The severe recession has fast-forwarded history, catapulting an unprepared world into a period of uneasy cohabitation between the United States, the No. 1 economy, and its likely successor.

“China is the West’s greatest hope and greatest fear.”  “No one was quite ready for how fast China has emerged.” “Everyone is trying to understand what sort of China they will be dealing with.” Politicians, pundits and academics.

For the first time, economists are pointing to Chinese spending — not the U.S. consumer — as the key to a global recovery. China’s GDP could overtake that of the United States within a decade; a PriceWaterhouseCoopers report predicts by 2020; and Goldman Sachs predicts by 2027; others are speculating about when the renminbi might begin to challenge the dollar as the world’s reserve currency.

Meanwhile, as developing countries look for a recipe for faster growth and greater stability than that offered by the now-tattered “Washington Consensus” of open markets, floating currencies and free elections, there is talk about a “Beijing Consensus.”

When the United States was snapping at the heels of the British empire, the global ruler of the early 20th century, the situation caused plenty of heat, even though both countries spoke the same language, shared similar values and were liberal democracies. China, in contrast, is a Confucian- Communist-capitalist hybrid under the umbrella of a one-party state that has so far resisted giving greater political freedom to a growing middle class.

What is the Beijing consensus? Some see it as a form of economic management with greater government involvement that is on the rise across the world. Others interpret it to mean more strictly controlled capital markets, which have made a re-appearance even in previously open countries like Brazil. Policy makers in Malaysia and Dubai focus on replicating China’s special economic zones, which afford generous terms to foreign investors in manageable geographic areas. Some suggest that China’s lack of democracy is an advantage in making unpopular but necessary changes. “It is more challenging for democratic systems because ever day they come under public pressure and every short period they have to go back to the polls,” said Victor Chu, chairman of First Eastern Investment Group in Hong Kong, the largest direct investment firm in China. “China is lucky to have the ability to make long-term strategic decisions and then execute them clinically.”

Some say Chinese officials are using their country’s $2.4 trillion in foreign currency reserves as a bargaining chip, knowing that any hint of reducing those reserves would rattle currency markets. “As China is emerging on the global stage with unprecedented power and influence, it is not proving to be the global partner the United States and E.U. seek,” said Professor David Shambaugh of George Washington.

The world will be asking more and more of China. So far, it appears to be getting less and less in return.

Asia Power Unifying: Rail link from China to Singapore

In the planning stages is a rail network that will connect China, into Vietnam, through Cambodia, into Thailand, down Malaysia and to the southern tip of mainland south-east Asia, Singapore and its huge port. Much development is required. The French built Vietnam’s rail line a century ago and anyone who has traveled on it knows that it is cumbersome and slow. Cambodia’s rail network collapsed over decades of war and neglect. (Phnom Penh, the capital, lacks a train station.)

 

It’s completion will be a major boon for Asian commerce and supply chain manufacturing efficiencies. It would also be a pleasure as a traveler…

Ten Years on, the Age of Genomics is one Step Closer to Reality

When the genome was first mapped in 2000, it was thought that we were on the verge of a revolution in medicine. Innovation of course doesn’t always work in a straight line – more like fits and starts, small success and failure. Progress has been made, however.

For the last ten years, researchers, companies and investors bet on the notion that mutations that caused common diseases would themselves be common, so they set out to identify the common mutations in the human population. This is what made headlines in 2000. That meant indexing just a few healthy people – it didn’t really matter, so long as they were human – and comparing a small sector of a person’s individual genome to it.  This was expensive and, more importantly, supposed that the mutations would be easy to find.

The premise was incorrect. The latest findings suggest that common diseases are caused by rare, not common, mutations, such is the genetic lottery of reproduction. (Apparently natural selection weeds out disease-causing mutations before they become common.) The belief now is that the entire genome of patients need to be analyzed to get a complete, integral view. But the problem has been cost. What first cost tens of millions per genome, so complex was the sequencing and so new the technology, has decreased to $25,000 per genome, and at scale could drop below $5,000. (The company behind the testing is Complete Genomics of Mountain View, California.)

The research is still elementary. For example, we most understand single-gene, cause-and-effect diseases. But this research is the gateway to the more common multigene diseases such as cancer.

Customized medicine is coming. It will involve the sequencing of a person’s genome at birth, so that preventive measures can be taken until genetic altering cures can be found; and eventually, medicine that is designed to work with the an individual’s DNA footprint. Stay tuned.  

What’s Driving American Innovation?

America enjoys a well educated work force, natural resources and political stability, but it is lagging behind in the production of twenty-first century human capital: high-tech and scientific talent that is the engine of innovation and the fuel nation defying corporations most desire.  

The globalization of skilled labor is upon us. Said the CEO of Intel: “I have the luxury of hiring the best engineers anywhere on earth. If I can’t get them out of M.I.T., I’ll get them out of Tsing Hua [Beijing’s M.I.T.]” A 2009 study by the Information Technology and Innovation Foundation “ranked the U.S. sixth among the top 40 industrialized nations in innovative competitiveness — not great, but not bad. Yet that same study also measured what they call ‘the rate of change in innovation capacity’ over the last decade —how much countries were doing to make themselves more innovative for the future. The study relied on 16 different metrics of human capital — I.T. infrastructure, economic performance and so on. On this scale, the U.S. ranked dead last out of the same 40 nations. ... When you take a hard look at the things that make any country competitive. ... we are slipping,” said the Intel CEO.

“Having run a company through a major transition, it’s a lot easier to change when you can than when you have to. The cost is less. You have more time. I am a little worried that by the time we wake up to the crisis we will be in the abyss.” This from the head of one of America’s most successful high-tech companies.

The Hadron Collider, Our Egyptian Pyramid

After some 16 years and $10 billion, the world’s biggest physics machine, the Hadron Collider, began its mission to study the deepest dimensions of inner space in search of a dark matter, the Higgs boson, or the “God Particle.” But it’s only a theory and this grand, multinational, “One World”  science experiment is setting out to determine its veracity.

 

The accelerator is nothing more than a microscope and a camera – a “nano-micro-scope,” to be exact, to measure the smallest distance and an “ultra-strobo-scope” to capture the briefest moment of time. Protons are whipped to 99 percent the speed of light around a 17-mile underground magnetic track and crashed into each other. What is captured are the supposed elements of the universe one trillionth of a second after the Big Bang. Impressive, mind-bending stuff.

 

Particle colliders get their basis from Einstein’s equation of mass and energy. The more energy the machines can pack into their little fireballs, the farther back in time they can go, closer and closer to the Big Bang, and the smaller and smaller are the things they can see. (The first modern accelerator was the cyclotron, just up the hill from my parents home here in Berkeley, California, built by Ernest Lawrence at the Lawrence Berkeley National Laboratory at UC Berkeley in the 1930s.)

 

The Hadron Collider is the biggest ever built. It is as ambitious and grand as the Egyptian Pyramids and a testimony to our post-Enlightenment quest for truth as defined by scientific discovery rather than mummified superstition.

 

Watch a lecture about the accelerator from one of the most brilliant contemporary physicist, Professor Frank Wilczek of Princeton:

And check out these two cool – even hip and hop – videos:

 

The Coming Age of Personalized Medicine

Since the first sequencing of the human genome in 2000, there’s been a lot of hype surrounding the coming revolution in medicine. Progress is slow. A handful of start-ups have sprung up offering custom DNA mapping – but it has yet to take off.

 

These four companies are the largest, with 23andme co-founded by Anne Wojcicki, the wife of Google’s co-founder Sergey Brin.

 

23and me

https://www.23andme.com/

Navigenics

http://www.navigenics.com/

Decode

http://www.decode.com/

Pathway

http://www.pathway.com/

 

There’s a handful of remaining obstacles, not making it ready for medical school prime time. Here’s why:

• The science is unable to offer meaningful predictions about the risk that a person will get a disease. Say 12% likelihood of developing heart disease. Compared to what?
• It’s still relatively expensive, anywhere from $500 to $2,000. Recreationally, if you have the cash, however, it’s fascinating if not entertaining. 
• The tests only sequences a small portion of the genome, a million “hot” spots where higher correlations have been found among common diseases. But there’s at least three billion spots to examine
• It’s not so simple. Genetic variations can only explain a small part of the risk of getting most diseases. The rest involves still unknown genetic factors or environmental, psycho-social ones.
• Finally, for now at least, in most cases there is little a person can do to act on the information

 The most success has been around carrier testing – prospective parents wanting to know if they harbor mutations that could result in their children developing inherited diseases such as Tay-Sachs – or learning more about your ancestor’s migration and geographic patterns.

 

To make the tests more useful, the companies are adding more practical “so what” information. Others are targeting MDs rather than the public. 

 

As the cost of reading DNA continues to fall, and as scientists gain a better understanding of the link between genes, disease and medicine, analyzing people’s genetic make-ups will one day, I predict, become an integral part of health care.

 

In the meantime, vitamins and exercise may have to do.

Green Tech – Who Will Lead?

The “Great Game” of the 21st century will be energy and clean, fresh water. Beijing’s goal is to quadruple the economy but increase energy use by two-fold. To get even close will require innovation and technology. Who will lead? In China, green initiatives, innovation and investment comes from the top down, with little to no private or foreign investment. The firms behind green energy are state-owned energy enterprises. Beijing sees this correctly: as a national security issue. Their gains are impressive:

Wind Energy – China is #3. Manufactures include Sinovel Wind and Goldwind Science and Technology. Massive wind farms are going up in the remote West.

Solar – China is now the leading solar and solar water heater producer.  In  2001, China produced just 5 megawatts of solar cells; last year it produced 1,800 megawatts, a 300 time increase). Suntech are largest producer. It plans to build the world’s largest solar power plant in Inner Mongolia – deal between FirstSolar USA and Beijing. It will be the size of Manhattan and power 3 million homes!

And then there are simple sounding examples that Washington can’t seem to muster. For example, in 2008, China added a small tariff on grocery plastic bags and witnessed a 66 percent reduction. In 2005, it implemented an air conditioner temperature policy that thatr had similar affects.

There are downsides to this approach. Domestic part manufactures are known to knock off Western technology. There is huge overcapacity. Many environmental, health and safety standards and laws are not implemented or enforced. Business and individuals inevitably try to game the rules.

But still.

Thomas Freedman just opined on this subject, again:

"Being in China right now I am more convinced than ever that when historians look back at the end of the first decade of the 21st century, they will say that the most important thing to happen was not the Great Recession, but China’s Green Leap Forward. The Beijing leadership clearly understands that the E.T. — Energy Technology — revolution is both a necessity and an opportunity, and they do not intend to miss it."

America’s Economic Engine

I ponder the trajectory of emerging markets. The challenges are daunting. It’s a tough and uncertain road. What it is about America’s recipe that is the envy of the world?

 

· Innovation feeders in science and technology; best universities in the world

· risk capital = starting new companies.

· Meritocracy and diversity means anyone can become boss

· Religious zeal for competition and free markets, or mostly free

· Unparallel ability to turn academic theory into practical invention

· Higher education attracts global talent magnet

· Extraordinary dynamism and resilience to get back up and try again

· Regional, bottom up solutions

Singapore – #2 in Economic Freedom in the World

After Hong Kong, Singapore is the most laisser faire economy in the world.

 

http://www.heritage.org/index/Ranking.aspx

 

Economic models that are only theory in the West, and so often espoused by The Economist, are implemented in Singapore. Traffic congestion is dealt with by resource pricing (photo), whereby the route, type of vehicle and time determines a journeys cost. Prostitution is heavily regulated and sin taxes on alcohol and cigarettes are high (a beer at a bar cost about US$7.00), helping offset the healthcare burden.

Upon separation from Malaysia in 1965, Singapore was faced with a lack of physical resources and a small domestic market. In response, the Singapore Government adopted a pro-business, pro-foreign investment, export-oriented economic policy combined with state-directed investments in government-owned corporations. The ruling party, once described itself as socialist but after becoming openly capitalist now described itself as  pragmatic, that is, like China, capitalism with authoritarian social controls.

Singapore's strategy proved successful, producing real growth that averaged about 8.0% from 1960 to 1999.

Its business environment is corruption-free and transparent, inflation is stable, and it enjoys one of the highest GDPs in the world. The so called Singapore Model is the combination of economic planning and rigorous free-market principles. Primary exports are services, electronics, chemicals and up-and-coming biotechnology. In turn, it imports natural resources and raw materials as the country has no land to develop. Strategically located, its port is the busiest in the world.

 

Excellent education system makes for highly skilled labor.

Singapore – New Biotechnology Player

Singapore is always reinventing itself. As a nation, it lives the motto, “only the paranoid survive.”  The electronics industry leads Singapore's manufacturing sector, accounting for nearly 50 percent of its output, but the government also is heavily promoting development of the chemicals and biotechnology sectors, which now account for 16 percent of manufacturing. Hundred of millions of dollars are being invested in infrastructure, fund research and development, and recruiting top international scientists.

Leading drug makers such a Merck, Pfizer and GlaxoSmithKline have set up plants here.

The Prosperious City-Nation of Singapore

Staying with a business school classmate and his family. He works in the banking.

 

Singapore is wealthy, civilized and sterile. About 80 percent of the population are Chinese, dating back to ninetieth century British colony days. English is the primary language, and Mandarin second, a good combination as we enter the twenty-first century. At some point, the government instituted civil reforms to “govern” the Chinese population, by passing strict conduct codes regarding smoking, spitting, j-walking, chewing gum and littering. It worked. Expensive compared to the rest of Asia. Excellent food.

 

Like Hong Kong, international brands and lavish displays of materialism are apparent. I am told by a national that Singapore is a haven for the rich to run away from their troubles (or illicit activity) in other parts of the world. One thing is for sure, it's nothing like the rest of SE Asia.

Parting Thoughts on Vietnam

This picture is a good symbol of modern Vietnam, a tangled and tenuous patchwork of law and order. Having spoken to a bunch of folks during my time in Vietnam, North and South, what I have heard is not unlike the opportunities and risks facing any other developing nation. Now that it’s opened itself up to the global economy, it’s biggest risks appear not embracing a bold future and instituting reforms unfavorable to Hanoi.

 

As an investor, Vietnam appears risky. Its market reforms have a long way to go. For those with business interests in Vietnam, it’s a grown floor opportunity but more risky than India and China.

 

Challenges

Poor infrastructure

Lack of capital to make the kind of investments you see in China

Quality of public education

Inflation and instability of Dong currency.

Corruption and one party system

Lack of judicial process, advanced legal system, rigorous enforcement

Greater Transparency for Laws, Regulations, and Administrative Procedures.

Import tariffs remain high

Intellectual property law

 

Opportunities

Young, hard working, future-oriented, commerce-driven citizens

Competitive advantage: cheap cost of labor and business orientation

Inexpensive labor (per capita income is only $2,900)

 

Future

Investments in education

Road networks being built

Subway lines for Hanoi and Saigon planned but will take a decade to complete

The Vietnam Success Story – So Far…

Vietnam is moving parallel to China. Vietnam game up communist economics in 1986, with a policy called doe moi, “economic renovation,” and it has been liberalizing its economy since then, joining the World Trade Organization in 2007.

 

Vietnam’s growth rate has been among the highest in the world in recent years, expanding annually at by about 7 percent annually. Since then, trade is booming, increasing from $1.2 billion in 2000 to $12.5 billion. Business opportunities: services and products for a burgeoning urban middle class, with incomes four to five times the national average and over half its 85 million population under 30.

 

Vietnam became a member of the WTO only in 2007. By then, U.S. exports to Vietnam grew by 70+ percent to reach $1.9 billion, while Vietnam’s exports to the United States, the country’s largest export market, were up by 24 percent, reaching $10.6 billion. Vietnam has attracted $83.1 billion in foreign investment commitments since the country was opened to foreign investment in 1988.

 

Foreign direct investment in hotels and resorts, office buildings, information technology, steel and petrochemicals has surged from US$10.2 billion in 2006 upward to US$58 billion in 2008. Multi- US$ billion FDI projects in have been approved,

 

Yet inflation threatens to send many back to the rice fields. Due to huge current accounts, insecurity around its pegged currency, the Dong, and tight controls by Hanoi.

 

Its public debt is 52 percent of GDP!

Doing Business in Vietnam more Difficult than China

Except for large multinational brands, outside of outsourcing, doing business in Vietnam appears to me too costly and risky. Vietnam has all the characteristics of an emerging Asian nation, with the same economic opportunities and challenges. Unlike China, however, its fledging market and legal reforms have a way to go. Foreign firms face daunting obstacles and, unlike China and India, the market is small, with a population under 85 million (but half are under the age of 30). 

 

For starters, obtaining a business license can cost anywhere from US$25,000 to $250,000. Since the Vietnamese legal system is in its infancy, there is as yet no commercial code, no body of law and judicial precedents familiar to Western investors, and the few Vietnamese who may be involved in the implementation of the legal system do not have what we would regard as the proper background and training to decide commercial disputes.

 

Here’s some entertaining do’s and dont’s picked up by the American Chamber of Commerce:

 

Do not assume that either the laws or regulations presently in effect in Vietnam will not be changed to your detriment before and/or after a project is started or completed.

Do not assume that even seemingly inconsequential failure(s) to comply with the laws and/or regulations of Vietnam will not cause you to face a possible loss or forfeiture of your investment in a project.

Do not assume that all Vietnamese you deal with will have the same concept of fairness and fair dealing that you might or would expect to find in other foreign countries.

Be prepared for laws and regulations that are incomplete, ambiguous and subject to different conflicting interpretations by different government agencies.

Citibank Vietnam

At a networking event in Hanoi, I talked with the head of Citibank banking in Vietnam, who is bullish on banking.  The bank has been following the country’s development for the last twenty years and was the first to receive a branch license in 1993. Most notable he said to me: “the Vietnam are getting comfortable with not keeping their money under a mattress,” that is, private banking (checking accounts), using an ATM and online banking. Also Citibank is eager to provide the burgeoning middle class with “loan products” (i.e., credit cards) of the same variety as in the West, for better and for worse, one supposes.

American-Vietnam Relations Warm

In Hanoi, the American Chamber of Commerce sponsored a lunchtime lecture by General Barry McCaffrey, a national security expert to the Bush and Obama White House. He is here with a Vietnam Vet nonprofit peace delegation visiting the former Demilitarized Zone (which in fact was one of the most land mind areas during the war).

In addition to being bearish on Afghanistan, the general spoke with admiration about the Vietnamese people, and their ability to not harbor resentment, be well received by former battlefield enemies, and work hard as they look to the future. Some say that Americans are still hated; others say that the Vietnamese despise the Chinese above everyone else and the Americans present a compelling business opportunity, simple as that. The U.S. lifted its embargo and normalized trade relations in 1986.

In 1990, President Clinton visited the country (the people fawned over him); and it joined the World Trade Organization in 1997 Meanwhile, an American reporter for AP, who has lived in Hanoi for ten years, confirmed how quickly the country is developing. Yet like many professionals I surveyed, he cited a rigid autocracy, strict censorship (more so than China) and controls on where he reports and who he can speak to on the record.

“You don’t mess with the government here – the consequences are grave if you’re a national,” he said. He also lamented the near death of the media and publishing industry…

Asian Smoke Stacks

Tobacco companies make a, well, killing in Asia, where smoking is ubiquitous by men. All the efforts to regulate smoking in the West have done little to dampen these firms profits, who have been exploiting the Asian market for at least the last twenty years.

Cigarettes are cheap, too. Other than gruesome pictures of tarred lungs on the package, and a local language warning, there is no incentive to quiet.

Women for the most part don’t smoke, and certainly not in public. Young European women, seduced perhaps by feeling immortality, is another story.

Ho Chi Minh of the North vs. the Saigon South

Ho Chi Minh City is to Washington, DC as Saigon is to New York and Honk Kong. No wonder: the south was occupied by the Americans and it benefits from a more liberal, open market approach to business.  I prefer Ho Chi Minh Old Quarter and surroundings, architecture and history, but Saigon is clearly the center of commerce .

E-Commerce, Thai Style, set to Take Off

Thailand’s turn. E-commerce operators are seeing 30-50% year-of-year growth, as the middle class grows and Thais become more comfortable shopping on the Internet. Similar trends in China but on a smaller scale.Yes, Thais do love shopping.

http://www.weloveshopping.com/

The Thai Underground: Sex, drugs and money laundering

Everything is for sale. The government has cracked down (successfully) on drugs, especially coming from the Golden Triangle up north, where the border with Laos and Burma meet, and it prosecutes under age prostitution. It’s now illegal for officials to accept bribes.

As for money laundering, there’s a huge building of people dedicated to its prevention.

Globalization on Western Terms

Herein is the biggest critique of globalization. The “imperial” Western firms squish the local traditions with a dose of Madison Avenue marketing.

There is globalization; and there is a globalized, technology-enabled world. For better and for worse, both are advancing rapidly in Asia.

Executive opinions from Shanghai

I depart for Guangzhou later today, overnight train to Guangzhou. Last night I met with four American MBA educated Chinese, working at a media multinational, big pharm a French “HomeDepot,” and an ex-Goldman private equity firm devoted to the emerging China market.

There observations where instructive. They too believe China is on a path of evolution not revolution. It’s complex system, with many forces pulling in different directions. Business wants stability as much as the government. But Beijing is nervous. The stability is tenuous. There is intense social unrest just beneath the surface (Tibet, Xinchiang, Taiwan) and the grip is tighter than they can remember. (They and other educated Chinese I met were a bit embarrassed by Beijing’s National Day lockdown.)

Just ten years ago, taking a foreign company job in Shanghai or Beijing was the only game in town. Today more and more young people are interested in positions back in their province or town. It’s a reflection of how far wealth and opportunity has spread from the city center. Working for the government is a big deal. Every year millions of young Chinese take the entrance exam. I’m stunned to hear that half of the educated Chinese abroad are looking to repatriate, but it conforms what EJ said about Beijing recruitment.

The new wealth are those under fifty, mostly entrepreneurs in real estate. Conspicuous consumption and selfish individualism is on the rise.  “China is growing too rapidly,” they agree. Expectations are becoming distorted. Untethered from Confucianist ethics and we’re-in-it-together Mao, young people are beginning to flounder in the isolation of individualism, just as they do in the West. I am realizing that the speed of the change is leaving psychological and spiritual confusion. “Anything and everything is possible here.” As in, anything. My Chinese friends chuckle with a tinge of unease.

Shanghai’s Magnetic Future

For fun today I took a spin on what I believe is the world’s only Maglev Train, in China. It levitates above the track. Connecting downtown and the airport, we reach a giddy 430 km/hour. A German I meet up with in Bangkok later tells me that she believes the whole system was bought by Berlin, who ran out of money to complete the project. As for America, if you’ve ridden Amtrak, you know where we are in rail technology.

The video that Won Shanghai Expo 2010

Masterful presentation. I would now expect nothing less from China.

A City on the Hill, Shanghai 2020

The Urban Planning Exhibition Hall is six stories devoted to the grand ambitions of Shanghai city planners for 2020. This is not government marketing; this is audacious on a scale unimaginable. With its methodically detailed plans and gigantic architectural models, 3D portrays, environmental impact efforts, Expo master plan – think Sim City, the video game, for real – you can’t help appreciate China’s autocratic ability to plan, design, and execute.

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The theme of the Expo is “Better City, Better Life”. The models are brilliant in design, innovation and creativity. There is an impressive emphasis on green technology and urban sustainability: solar hot water, waste water collection, plant irrigation, energy conservation air con, river geo thermal heat, rainwater collection systems, solar photovoltaic, low impact building materials, low energy electrical system, vertical green plant walls. Sure some of this is show. But this is the future, and America is still discovering low-wattage LCD lights.

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Then you see the mock-ups of each nations pavilion, and how Holland and Scandinavia will be illustrating green technology and design. More of the same. There are tens of countries but the United States pavilion is absent. That’s strange. Why is our emerging technology and engineering? Detractors will say that many of these technologies are experimental and will fail. That’s true. But that’s how innovation works. You get better because you try something, learn, and go at it again. It’s the same in art, in building a company, a product, and in building a nation. Many of our best inventors are by accident.

I ponder how much technology transfer will benefit China. The government is acting like a venture capitalist, here in Shanghai but also with capital projections around the nation. Throwing money at lots of things in the hope that a few might take root. Many will fail, some will be ok, but others might go big.

I am frustrated. What is America’s cohesive national policy? There isn’t one. Our investment in tomorrow? Short-term gains. Our long-term planning? Washington mired in deadlock. What is America’s 2020? To my fellow Americans who think we will always be on top of our game, who want their children to have an economic future, who think China makes inexpensive goods for export, visit Shanghai and the Urban Planning Exhibition Hall.