The Wall Street Journal
08/01/97
By Samantha Marshall

Misako Kaji, an economics counselor at the Japanese Embassy in Hanoi,
Vietnam, gets frustrated when Vietnamese officials remind her of the
decline in Japan's direct investment in Vietnam. Japan dropped to
sixth place in investment last year; as recently as 1995, Japan was
the nation's second-largest investor.

"They tell me we should be No. 1," she says. But the Vietnamese
government doesn't seem to understand that "in a free market, it's
about making a profit."

Japanese investors are discovering that's not so easy in Vietnam's
business climate. So they are investing far less capital, and focusing
on more-conservative, smaller-scale projects. Figures from Vietnam's
Ministry of Planning and Investment show direct investment has dropped
by almost half, to $591 million in 1996 from $1.13 billion in 1995.
Japanese trade officials say investment is likely to continue to
shrink in 1997. Only $82 million in Japanese investment was pledged
during this year's first quarter.

Part of the reason for the sharp decline in investment over the past
two years is a drop in the value of the yen, Ms. Kaji notes. That,
combined with investment obstacles in Vietnam and Japan's own economic
woes, has led to a more cautious investment strategy, she says.

Meanwhile, the first wave of big-spending, heavy-industry investment
-- steel plants and the like -- appears to have spent itself, says
Toshio Asakura, chief representative of the Japan External Trade
Organization in Hanoi. Today, most of the action is in the likes of
instant-noodle joint ventures, soap makers and women's undergarment
manufacturers.

Sumitomo Corp.'s joint venture to build heavy trucks, Hino Motor
Vietnam, started construction last year and should begin production in
October. But that may be the company's last direct investment in heavy
industry in the country for a while, says Yoshifumi Tsujio, general
manager for Vietnam. "Very big industry has already established its
factories, and needs support industries now," he says. Sumy Hanel
Electronics Co., an electronic-components maker, is more typical of
Sumitomo's latest joint-venture projects.

In response to one of the biggest complaints about building factories
in Vietnam -- the lack of basic infrastructure -- several Japanese
trading houses have begun building industrial parks. In a country
where land-use rights, as well as basics such as electricity and
water, are often hard to come by, industrial parks make sense, Ms.
Kaji says. But so far, such developments have been plagued with
problems, such as land-clearance delays, competition and low
occupancy. "In the short term, they won't make money," Ms. Kaji says.

Six months after completion, the Haiphong industrial park of
Nomura-Haiphong Industrial Zone Development Corp., for example, has
achieved only 15% occupancy. Nomura-Haiphong, a venture of Nomura
Securities Co., doesn't expect to fill its about 371-acre property
with tenants until 2000.

Sumitomo, meanwhile, is bullish about its recently licensed industrial
park north of Hanoi, and insists its location gives it an advantage
over other parks. The property's proximity to Hanoi's city center, not
to mention the Noi Boi airport and a road, sea and rail terminal, will
attract overseas manufacturers more easily, predicts Hajime Yamaguchi,
deputy general director of the joint-venture park, known as Thang Long
Industrial Park Corp. But Sumitomo will need these added attractions.
There are already two parks near Hanoi, and three more have been
licensed, including Thang Long. Considering the size of the market,
"The number of industrial parks is just too much at this moment," says
Shinichiro Hatakeyama, vice president of the Nomura-Haiphong park.

VN Business News 01/08/97