Vietnam destination of choice for relocating firms

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Vietnam hosts Southeast Asian leaders this week as chair of their 10-nation bloc, shining a spotlight on the political and economic stability that prompted Intel Corp. and Toyota Motor Corp. to increase investments.

The nation drew 13.5 percent of the Association of Southeast Asian Nations (ASEAN)'s foreign direct investment pool in 2008, up from 4.4 percent two years earlier, according to the 10-member group.

And its allure may be rising, judging from a December survey by the American Chamber of Commerce in Shanghai. Vietnam is a preferred destination for businesses looking to relocate from China, Asia's biggest investment recipient, the report said.

"A lot of companies from a strategic standpoint are looking at how to set up a production facility within Asean," said James Lockett, a Hanoi-based lawyer with Baker & McKenzie LLP and a board member of the American Chamber of Commerce in Vietnam. "In a lot of product areas, Vietnam looks very, very attractive for people who are doing that."

Vietnam's economy expanded 5.2 percent last year, the most in ASEAN, which has signed free-trade accords with China, Japan, South Korea, Australia and New Zealand. The deals give companies access to those countries and the ASEAN member states of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam. ASEAN is home to about 600 million people and its populations are among Asia's youngest.

RISING YUAN

Banks such as Goldman Sachs Group Inc. predict China will allow its currency to appreciate amid pressure from US lawmakers, reducing its attractiveness to exporters. The yuan will rise to 6.66 per dollar by the end of September, New York-based Goldman said in an April 1 research note.

ASEAN leaders meeting April 8- 9 in Hanoi will issue a statement on climate change and define a "road map" to form an economic community modeled on the European Union by 2015. In March, ASEAN trade ministers said they would travel to the US to promote the group as an economic hub.

Obama visit

The region's growing economic importance was underscored when President Barack Obama became the first US leader to meet formally with the bloc in November.

California-based Intel, the world's biggest chipmaker, is scheduled to open a US$1 billion testing facility in Ho Chi Minh City this year that will employ about 4,000 people. Intel chose Vietnam because of its proximity to customers, reliable power and water supply and skilled workers, said Nick Jacobs, Intel's regional spokesman.

"Vietnam is a country which is very committed to education, and that gives us confidence we will continue to attract the talent we need for long-term success," he said.

Toyota produced 28,000 vehicles in Vietnam last year, up from 18,000 in 2007, spokesman Paul Nolasco said. The Japan-based company had 1,300 employees in Vietnam, more than double the number in 2005, he said.

"˜Potential growth'

"Toyota recognizes not only the potential growth of that market but the potential role the Vietnamese economy can make in broader Southeast Asia," Nolasco said. Toyota produced more than six million vehicles globally in 2009.

Suwon, South Korea-based Samsung Electronics Co., the world's second-biggest maker of mobile phones, opened a $1 billion factory in Vietnam six months ago. Redmond, Washington-based Microsoft Corp. outsources digital animation and modeling for its computer games to Vietnam.

"There is a measure of political stability" in Vietnam, Rodolfo Severino, ASEAN's former secretary-general, said by phone from Singapore. "If I were an investor I would bet my money on it."

The number of foreign companies in China with plans to relocate plants inland or outside the country because of rising costs doubled last year, according to a survey of 202 foreign manufacturers by the American chamber. The poll found 8 percent of respondents reported plans to relocate or expand outside of China compared with 28 percent considering moves to lower-cost areas in southwest or central China.

In the short term, Vietnam's inflation rate, among the world's highest, caused the country to fall last year in the World Economic Forum's Global Competitiveness Report. Consumer prices rose 9.46 percent in March, the biggest gain in a year.

Fitch Ratings placed Vietnam's debt rating on a negative watch last month. Vietnam "has been making positive structural changes to increase its investment attractiveness," Prakriti Sofat, a Singapore-based economist for Barclays Capital, wrote in a report last month.

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