By Guest commentary Friday, November 15th, 2013

By David Newton on November 15, 2013

Ho Chi Minh City, Vietnam — The hybrid Chinese economy on display in Shanghai and Beijing pales in comparison to Hong Kong’s thriving private enterprise, but looks amazing compared to the socialist-blended capitalism of Vietnam.

Although the former British colony of Hong Kong was returned to the People’s Republic in 1997, this semi-autonomous region has largely retained its capitalist identity as the central planners in Beijing keep a decidedly light touch on the banking, engineering, innovation, and capital markets of this tiny peninsula. In contrast, Vietnam remains Third-World poor, chronically backward, and decades behind in technology and basic infrastructure.

Just over the border from Hong Kong are Shenzhen and, a bit further west,  Guangzhou.  And while manufacturing-assembly plants dominate these cities, the tenor of business is very different from the semi-autonomous Kowloon, Hong Kong Island, and Lantau.

Commerce associations and conferences in Shenzhen and Guangzhou focus on the speed of manufacturing, the comparative advantage of low-cost labor, and expanding transportation infrastructure to move goods more quickly.
But the business consortia and trade conventions of Hong Kong focus squarely on entrepreneurship, innovation, R&D, IT design, and global capital partnerships. Foreign business people know the best remedy for a long stressful day in Shenzhen is a quick walk back over the border to the more modern hotels, better restaurants and superior telecom of Hong Kong.

Entry to Hong Kong — like in Singapore, Malaysia, Japan, South Korea — requires no visa for shorter-term business or tourism trips. But mainland China and Vietnam both do, with various restrictions and multi-tiered fees.

Yet, my contacts in the Beijing economic development area know fully well that freedom of movement and ideas seems to be closely associated with the vibrant innovation of Hong Kong entrepreneurship — even as the People’s Republic struggles to find ways to foster or impose fresh approaches to commercial development. Guangzhou just started a 72-hour visa-free transit policy for foreign business travelers from several countries.  That incentive — like the brand new Shanghai Free Trade Zone — continues the Chinese government’s experiment with loosening business restrictions. Each time one of these proves successful its progress, albeit methodically slow. Some executives, like Si Xianmen, chairman of China Southern Airlines, speak openly about entrepreneurs having to “walk ahead of change.”

He comfortably quotes Peter Drucker’s “seek change, respond to change, use change as an opportunity,” and notes: “It’s better to be in business and feel pain, than not be in business at all”.

Shifting attention to northern Vietnam, especially greater Ha Noi, finds a return to the stark utilitarian-unimaginative architecture and infrastructure of a Leninist-socialist state, a mirror of 1960s Moscow or 1970s Havana.
Roads, street lights, electrical wiring, sewers, buildings are all in major disrepair, and businesses are almost entirely family-run cottage industries such as bakeries, laundries, sundries or bike repair shops.  The business mix gradually improves a bit traveling south to Da Nang, and then to Ho Chi Minh City.  The roadways go from dirt, gravel and potholes, to paved with lane markers, to some modern interchanges with crosswalks, curbs and sidewalks.

But for cellphones, the super slow “E” symbol is the northern standard. It morphs to 3G in Da Nang and Ho Chi Minh City, or HCMC, but there’s no 4G-LTE. Hotel and office WiFi speeds start at circa-1995 56K up north, reminiscent of AOL trying various connection numbers. There was very little true broadband able to support an American VPN portal and stream Netflix to my MacBook.

On the finance front, multi-million Vietnamese Dong cash-only payments at 20,750 Dong to a dollar are the norm up north. It’s jarring to spend 1.214 million in paper bills on a five-star hotel or 865,000 Dong on dinner for four people.
Farther south, some Visa credit card merchants show up, along with American Express, Mastercard, and PLUS/Maestro ATMs.  And while a few big employers are foreign firms such as Samsung, Canon and Suzuki, the overwhelming majority of the country’s industry remains very low-tech, state-owned entities such as PetroLimex, VietTel, Vietnam Electricity and Agribank.

Da Nang looks nicer, and has a much better business environment, than both the capital of Ha Noi or the supposedly “cosmopolitan” HCMC. Colleagues noted that Shanghai and Beijing had similarly poor financial and transportation infrastructure as recently as the late ’90s and even early ’00s.

You might say Vietnam is all upside, but the questions of when and where to start remain.

• Former Westmont College professor David Newton is a Santa Barbara-based new venture consultant, author and adjunct professor with The Rady School of Management at UC San Diego and the Pepperdine MBA programs. He is traveling through Asia this fall. Read his previous op/ed on China’s economy here.