SPEECH OF HKBAV'S CHAIRMAN MICHAEL CHIU

Your Excellencies, Honorable guests, Ladies & Gentlemen,

On behalf of Hong Kong Business Association, Vietnam, I would like to thank the City Authorities for organizing this event and providing us a platform for an effective and constructive dialogue today in this event.

I would also like to congratulate the Vietnamese Government on its accession to the World Trade Organization. Membership of the WTO is a tremendous and significant step in the development of Vietnam economy in the years to come. At the same time, I would like to take this opportunity to thank you again the City Authorities who have given full support to HKBAV and Hong Kong business community in Vietnam.

According to the statistics report, over 48% investment in HCM City of the total amount are Hong Kong FDI projects (374 projects), with capital nearly 5 billion US dollar as of November 2006. The main projects are in Garment Manufacturing and Property Investment, of which I would like to give a brief report and summarize on.

Garment Manufacturing:

The immediate challenge posed by WTO accession is the elimination of subsidies, particularly in the form of tax incentives for exporters such as Garment industry, This sector, which accounted for nearly 50% Vietnam’s US$6+ billion in exports to the US last year, faces an immediate increase in its basic tax rate from 10% to 28%, a 180% increase in this important cost of doing business.
As you know the minimum wages have gone up by over 40% in February 2006 and multiplied in last two years. New social insurance tax has been introduced recently without much consultation. At the end of 2005 and early 2006, illegal and violent strikes occurred in the economic processing zone, and there have been growing traffic jams, manufacturers are struggling to maintain their cost competitiveness.

We hope that the Government can improve the traffic condition by investing in the infrastructure especially highways, encourage private sector to participate in projects and related services such as public transportation, road building and logistics. Exert better control in motorbike traffic that is not as efficient as public transport and important in economic contribution as to trucks that move the export load. More investments in the training of skill workers and technicians are urgently needed. In the area of taxation, reduce the actual effective tax rate and simplify tax payment by reforming the tax system. Please do not add more burdens to the investors on Personal Income Tax which is among the highest in South East Asia and gradually reduce the protective measures on general labor force after joining the WTO to make the market more interactive and balanced.

Property Investment:

I. High land cost in comparison with neighboring countries
Land cost in Vietnam, particularly in Ho Chi Minh City, is quite high when compare with major cities in neighboring countries such as Bangkok and KL.  As a result of high land cost, retail space, office space and residential rental is also relatively higher than that of neighboring countries.  As a result, it will reduce competitive advantage of Vietnam in manufacturing and industrial sectors.

II. Long approval process in property development projects
Most projects, big or small, often require approval process involving months, and at times, years of approval process.  This long approval process is very discouraging for potential investors.  The PC of HCMC should look into this seriously and try to improve transparency and procedural handling of property development projects.

Lastly, I would like to thank again your kind attention and give us the opportunity today to voice out the concern here. In closing, I wish good health to the City’s leaders and the honored guests here today and all the best of success.

Thank you.