Moneybox: Vietnam's Free Market Dawn

"This is a good time to be a financial journalist in Vietnam," confided Le Tan Phuoc, chief executive officer of Searefico, a publicly held company that specializes in industrial air-conditioning systems.

We were in the midst of a nine-course Chinese lunch at the glistening New World Hotel Saigon in Ho Chi Minh City. My mouth was filled with course No. 2 (braised shredded abalone soup with dried seafood), and my eyes were on course No. 3, deep-fried crab with tamarind sauce. Le continued, "They're all making money in the stock market. See, they get information from their friends and people they know in government, or in the companies, and then they trade before everybody else knows about it." I stifled a spit-take and nodded sagely.

As a connoisseur of bubbles, I'm always on the lookout for signs of unsustainable economic trends at home and abroad. A recent trip to Vietnam and Cambodia, as part of a German Marshall Fund of the United States economic journalism fellowship, provided food for thought. Having embraced the free market in 1986, the country of 85 million is rushing headlong into the global economy. Everywhere you go in Hanoi and Ho Chi Minh City, somebody is selling something. Women wearing bamboo hats squat on the sidewalk, selling tangerines, bananas, live eels, a single fish. The energy is palpable. Jogging in the September 23 Park in Ho Chi Minh City, I weaved through groups of women exercising with fans, mixed groups playing badminton without nets, a group of teens playing hacky sack with a shuttlecock. Such bourgeois pursuits evidently meet with the approval of the ubiquitous Ho Chi Minh, who looks down on modern Vietnam from the currency, from walls in corporate boardrooms, government offices, and stores. Set against a red background, he's always smiling, grandfatherly, with white hair and a wispy white beard. As I completed my circuit in the park, I looked up to see another huge image of a smiling grandfatherly figure, with white hair and a wispy white beard set against a red background: Col. Sanders on a gigantic KFC billboard.

Vietnam seems on the boil, like the pots at the ubiquitous pho stands. (Idea for franchise: Best Little Pho House in Saigon.) For the last few years, the economy has grown at an 8 percent clip. Through the first three quarters of 2007, domestic private-sector investment was up 28 percent, and foreign direct investment rose 38 percent. Earlier this year, Vietnam formally joined the World Trade Organization. The stock market is booming. At the end of 2005, according to the World Bank, 41 firms with a combined market capitalization of $1 billion were listed. At the end of September, the Vietnam markets claimed 206 listed firms with a combined capitalization of $22 billion. The percentage of citizens living on less than $2 a day has fallen from 63.5 percent in 2000 to about 33 percent this year. "We have been totally able to alter the face of our country," said Deputy Prime Minister Pham Gia Khiem.

The recent history is at once inspiring and bewildering—yet another former Communist country wholeheartedly embracing Western-style capitalism, providing the United States with a source of cheap labor and a new potential market for growth. But as shown by the blasé attitude toward insider trading, Vietnam's free-market capitalism is a somewhat different creature than the U.S. version. And the differences are enough to give a visitor pause about the sustainability of Vietnam's boom.

The checks and balances that help U.S. markets function well (the subprime debacle notwithstanding) aren't yet in place. Many of the publicly held companies are controlled in part by the government. I asked the CEO of Searefico whether his company enjoys any advantages because of its government ownership (the state has a minority stake). The company can borrow money from state banks at favorable interest rates without having to put up collateral, he conceded. Yet his answer was a definitive "no." The financial press is free, we were told, but journalists generally have to clear information with the government and the companies before they run it. A manager of the Vietnam Investment Review, a publication of the state Ministry of Planning and Investment, asked me if the U.S. government tells Newsweek how many ads to run every issue.

In the United States, bubbles in infrastructures—telegraph, railroad, Internet—helped lay the foundation for long-term growth by creating platforms for new types of businesses. In Vietnam, the process seems to be reversed. Investment is pouring into new banks, factories, and hotels, but not into crucial infrastructure like roads, ports, and power systems. The telephone and electric poles look like twigs surrounded by mounds of angel hair pasta. We visited Nike's showcase factory outside Ho Chi Minh City, where 20,000 workers turn out millions of shoes each year. Nike, which arrived in Vietnam in 1995, is a massive presence in Vietnam, to which it has exported its somewhat creepy corporate culture. (Inspiring maxims are inscribed on the walls above urinals in the bathrooms, including: "No. 6 Evolve Immediately.") On one assembly line, contractors were experimenting with customization, which offers customers in the United States the ability to design their own shoes and receive them within several days. But given the traffic and the state of the roads, it struck me that it would take at least that long simply to get from the factory to the port. "We're already seeing delays," said Shirley Justice, general manager of Nike Vietnam, citing issues with roads, ports, and power supply. "If in a couple of years, the plans don't come through, there will be bottlenecks." In Hanoi, Vu Xuan Hong, a member of Vietnam's National Assembly, conceded that the roads are "terrible." And this was one of the only times one of our interlocutors betrayed even a hint of bitterness about the devastating damage inflicted on the country by the United States and its allies. Vu blamed the sad state of Vietnam's infrastructure in part on land mines and bombings. "Infrastructure is not well," he said, while slyly alluding to this summer's Minneapolis bridge disaster.

The traffic certainly doesn't seem sustainable. There's very little in the way of public transportation in Vietnam. It's difficult to describe the volume and relentless flow of motorbikes in the country's cities. Crossing the street is like wading into a river and swimming across. Your pace slows instantly, and the current morphs around you at the last minute.

There was another factor in Vietnam that was certainly unsustainable and that was clearly contributing to bubblelike conditions: As if to emphasize Vietnam's emergence from the dark decades of deprivation into the sunlight of prosperity, we were practically buried in food. The nine-course Chinese lunch, which came after a tremendous all-you-can-eat breakfast buffet, was followed by an eight-course Vietnamese dinner. Before I left on the trip, I dipped into Tim O'Brien's Vietnam chronicle The Things They Carried. The narrative of this group's journey to Vietnam would be more aptly titled The Things They Ate.