Saigon Beats Hanoi Four Decades After Vietnam War

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A street vendor walks past a Chanel SA store inside the Rex Hotel in downtown Ho Chi Minh City, Vietnam.

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Photographer: Justin Mott/Bloomberg

A street vendor walks past a Chanel SA store inside the Rex Hotel in downtown Ho Chi Minh City, Vietnam. Close

A street vendor walks past a Chanel SA store inside the Rex Hotel in downtown Ho Chi Minh City, Vietnam.

Photographer: Brent Lewin/Bloomberg

Commercial and residential buildings stand illuminated at night in Ho Chi Minh City, Vietnam. Ho Chi Minh City ranked 10th last year and Hanoi 33rd among 63 provinces and cities in the competitiveness gauge. Close

Commercial and residential buildings stand illuminated at night in Ho Chi Minh City, Vietnam. Ho Chi Minh City ranked... Read More

Photographer: Brent Lewin/Bloomberg

An electronic stock ticker displays share prices in the Ho Chi Minh Stock Exchange in Ho Chi Minh City, Vietnam. Close

An electronic stock ticker displays share prices in the Ho Chi Minh Stock Exchange in Ho Chi Minh City, Vietnam.

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People line up waiting to park their motorcycles as they arrive at the new McDonald's restaurant on February 14, 2014 in Ho Chi Minh City, Vietnam. Close

People line up waiting to park their motorcycles as they arrive at the new McDonald's restaurant on February 14, 2014... Read More

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Customers dine at a food stall inside Ben Thanh market in Ho Chi Minh City, Vietnam. The market is a landmark where tourists shop for lacquer boxes and raw silk, and slurp bowls of spicy beef noodles. Close

Customers dine at a food stall inside Ben Thanh market in Ho Chi Minh City, Vietnam. The market is a landmark where... Read More

Almost four decades after the Vietnam War ended, Saigon has turned the tables on Hanoi, outstripping its conqueror in investment and growth.

The former southern capital, renamed Ho Chi Minh City but still widely known by its prewar name, contributes almost a quarter of the country’s gross domestic product and the market capitalization of its stock index is seven times Hanoi’s. (VHINDEX) Now, Saigon is upping the ante with plans to build a new airport that would increase capacity as much as fivefold.

“By all measures, Ho Chi Minh City has moved into a more advanced place than Hanoi in terms of the sophistication of its economy and local companies,” said Edmund Malesky, an associate professor of political economy at Duke University in Durham, North Carolina, and the lead researcher for the Vietnam Provincial Competitiveness Index, compiled by the Vietnam Chamber of Commerce and Industry with U.S. aid.

It’s a long way from the chaotic day of April 30, 1975, when North Vietnamese tanks crashed through the gates of the presidential palace. Replicas are now parked outside as a tourist attraction, while the renamed Reunification Palace is a favored venue for shareholder meetings.

Saigon’s population has more than doubled to 7.8 million, while its economy grew 9.3 percent last year, pushing the city’s per-capita GDP to $4,513, more than twice the national average. In Hanoi, which has about 6.9 million residents, the economy grew 8.3 percent to increase its per-capita to $2,985.

Economic Hub

That makes the southern city key to Vietnam’s efforts to revive a national economy heading for its seventh straight year of sub-7 percent growth after averaging 7.3 percent in the previous seven years.

Ho Chi Minh City’s relative wealth makes it the entry point for many Western brands. McDonald’s Corp. (MCD) Chief Executive Officer Donald Thompson attended the opening of the company’s first branch in the country in February. A second opened in May near Ben Thanh market, a landmark where tourists slurp bowls of spicy beef noodles and shop for lacquer boxes and raw silk.

Hanoi got its first Starbucks Corp. store in July -- more than a year behind Ho Chi Minh City, which now has eight.

“Saigon is the dynamo, the city with more energy,” said Ray Burghardt, the Hanoi-based U.S. ambassador to Vietnam from 2001 to 2004, who lived in South Vietnam from 1970 to 1973.

Looking South

Part of that dynamism is rooted in the city’s past. Southern Vietnam’s trading roots date back centuries, according to Martin Stuart-Fox, an emeritus history professor at Australia’s University of Queensland in Brisbane. While Hanoi’s history is tied to the presence of neighboring China, about 100 miles away, Saigon, next to the rich alluvial plain of the Mekong Delta, is 700 miles to the south and closer to Thailand, Malaysia and Singapore than it is to the Chinese border.

“Southern Vietnam was always a frontier area, and because it didn’t have that close contact with China and didn’t look north as Hanoi always had, people in the south looked outward instead and welcomed trade,” said Stuart-Fox. “Then, when the French moved in, they built drainage canals to increase rice production in the Mekong Delta and boost trade with France, and in general focused on exploiting the south economically.”

Vietnam’s post-1975 attempts to stifle enterprise misfired “abysmally” in Ho Chi Minh City, with many entrepreneurs sent to labor camps for “capitalist activities,” until a crumbling economy caused Marxist tenets to be diluted or scrapped, Stanley Karnow wrote in his book “Vietnam: a History.” After the so-called Doi Moi economic reforms in 1986, Saigon resumed its role as a commercial hub, with newly freed entrepreneurs quickly resuming their businesses.

Western Influence

Growth was boosted in 2000 with the signing of a bilateral trade agreement with the U.S.

“The south has always had more U.S. influence on its business culture,” said Than Trong Phuc, managing director of technology-focused investment fund DFJ VinaCapital LP in Ho Chi Minh City. “Doing business here is more straightforward, whereas doing business in the north involves more government and a complex maze of relations.”

Saigon’s economy even may have benefited from being on the losing side of the war because it removed much of the government presence that existed when it was the southern capital, said Sesto Vecchi, managing partner of the Ho Chi Minh City office of U.S. law firm Russin & Vecchi. He arrived in South Vietnam in 1965 with the U.S. Navy and was in Saigon in the days before it fell.

Less Government

“Now there’s even less government impact on people’s decision making here,” said Vecchi, who returned to live in the city in 1993. “A lot of the government influence in those days was directed toward the war, but even with that, Saigon always had a strong commercial environment.” Hanoi’s position as the nation’s capital is a double-edged sword. While it makes the city vital for businesses that must deal with the ministries, especially banks, it also creates a more restrictive regulatory environment.

“We need to see more progress in terms of the economic-reform policies coming out of Hanoi,” Burghardt said. “Ho Chi Minh City is a hostage to the speed of those reforms.”

Ho Chi Minh City ranked 10th last year and Hanoi 33rd among 63 Vietnamese provinces and cities in the country’s competitiveness gauge, which weighs measures such as entry cost, transparency and access to land.

Downtown Airport

Ho Chi Minh City’s advance is most evident at the airport, which saw some of the fiercest fighting during the battle for the city in 1975. A 20-minute drive from Reunification Palace, Tan Son Nhat is now in the heart of Saigon’s expanding sprawl of houses, shops and factories. Still coded SGN for Saigon, it’s almost at bursting point, with almost twice the number of passengers that fly in and out of Hanoi.

The planned new airport in neighboring Dong Nai province eventually is expected to handle 100 million passengers a year, compared with about 20 million at Tan Son Nhat. The project needs approval from the National Assembly and its first stage, costing about $7.8 billion, wouldn’t be operational until at least 2020.

Meantime, the number of travelers coming to Vietnam keeps rising, climbing 11 percent last year to 7.6 million. Tourists heading to Hanoi are drawn to the scenic limestone islands of Ha Long Bay; in the south, it’s the beach resorts of Mui Ne and Phu Quoc island or the former emperor Bao Dai’s summer palace in the hills in Dalat.

The latest offering is a resort and casino at Ho Tram beach, with courtesy buses shuttling gamesters for the 2 1/2-hour drive to and from Saigon.

“The beaches in the north can only be used for half the year; the southern beaches are beautiful, and they are usable year-round,” said Paul Stoll, who helped set up the Vietnam Tourism Association and is chief executive of Celadon International Hotel Management Joint-Stock Co. “Ho Chi Minh City is Vietnam’s superhub.”

To contact the reporters on this story: Jason Folkmanis in Ho Chi Minh City at folkmanis@bloomberg.net; Nguyen Dieu Tu Uyen in Hanoi at uyen1@bloomberg.net

To contact the editors responsible for this story: Adam Majendie at adammajendie@bloomberg.net James Hertling

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