Oil-Rig Standoff with China Won't Hurt Vietnam FDI

HANOI--Tensions between Vietnam and China over the deployment of a Chinese oil rig in contested South China Sea waters that sparked deadly riots in May won't hurt foreign direct investment in the Southeast Asian country, a Vietnam government official said Tuesday.

Foreign direct investment has played an increasingly important role in Vietnam's economy since the country opened its doors to foreign investors more than two decades ago. FDI now accounts for a quarter of total investment in Vietnam and 60% of export revenue.

Vietnam, which has a population of 90 million and one of the fastest-growing economies in Asia, had been an attractive investment destination for foreigners, but growth has slowed over the past three years because of weak demand and stubbornly high levels of bad debt in the banking system.

The riots on May 13 and 14 in southern and central Vietnam left at least three Chinese nationals dead and hundreds of foreign-owned factories damaged and looted, adding to challenges the government must overcome to regain foreign investors' confidence.

"Vietnam immediately took measures to stabilize the [riot] situation and prevent it from happening again .. and almost all affected companies have resumed their normal operations," Nguyen Van Trung, deputy minister of planning and investment, told The Wall Street Journal.

The country has unveiled several measures to support and compensate for the damage caused to the affected companies, including tax and rent breaks, insurance, labor and security, Mr. Trung said.

Frederick R. Burke, managing director of Baker & McKenzie Vietnam, said that regional tensions have "put a brake on what many think would have been a new wave of Chinese investment" in Vietnam, but investors from Japan and South Korea are taking interest in the country as a strategic long-term production base.

The tensions fueled a sharp decline in the number of tourists from China, though "things seem to be returning to normal," he said. According to government data, the number of Chinese tourists visiting Vietnam in August fell 29% from a year earlier to 135,200.

"Vietnam will continue to maintain macroeconomic stability, improve its legal system, infrastructure and human resource and enhance the transparency of its business environment," Mr. Burke said. Also, unnecessary administrative procedures would be removed to attract more foreign investors, he added.

Mr. Trung said Vietnam would be selective in attracting new investment, with priority given to projects with high added value, advanced and environmentally friendly technologies and large projects that produce competitive products.

Mr. Burke said, however, that red tape and complex licensing requirements in Vietnam remained a serious concern for foreign investors planning to enter the country, adding that the lack of a strong judiciary to rule on commercial transactions and investments was also a long-term challenge.

The disbursement of FDI in the country this year is expected to increase 8.6% to $12.5 billion, Mr. Trung said.

According to government data, disbursement of foreign direct investment in Vietnam in the first eight months of this year totaled $7.9 billion, up 4.5% from the same period last year. FDI pledges for the period fell 19% to $10.2 billion.

Disbursement refers to the actual amount of money spent while pledges indicate the size of future disbursements. South Korea was the largest source of FDI pledges for the eight-month period, followed by Japan, Hong Kong and Singapore.

Write to Vu Trong Khanh at [e-mail]

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