Đầu tú chui

Dear list,

I've been puzzled over this phenomenon called "dda^`u tu' chui" whereby

foreign investors would set up a company under the domestic investment

laws rather than foreign investment laws by registering the company under

a Vietnamese person's name. Obviously this is quite a risky choice but I've

found quite a few such cases during my recent fieldwork. But I cannot

really make sense of this phenomenon even after talking with

some of those who actually made those choices.

My initial inclination was the difference in legal minimum wages

for foreign and domestic companies that may explain this.

As far as I could tell, this was not the case for

most of the cases I've had access to, though I suspect this may be a

reason for some of the "dau tu chui" cases at least. The foreign investors

I talked with generally mentioned "unwanted attention from the government"

as the main reason. But wouldn't the government know about this?

I think this is especially puzzling, in light of the claim that domestic

investors are discriminated against in relative terms as foreign

investment laws provide more favorable conditions. Then why would those

foreigners not take advantage of them?

So I'd love to receive collective wisdom of this list.

(1) How should this term "dau tu chui" be best translated?

(2) What may explain this?

(3) Similar phenomena from other countries?

Besides these, any ideas of how to make sense of this phenomenon would

also be very much appreaciated!

Thank you very much in advance!

Jee Young

Hey Chi,

This is a very interesting issue to me, too, and it's one I've been

thinking about a fair amount. I think a relevant literature is the

one that differentiates between vertical specialization (separate

ownership at different levels of production hierarchy) and vertical

integration (integrated ownership). A key question about the so-

called "dau tu chui" is the exact extent of the foreign investment

and the subsequent incentives to the Vietnamese owner. A good number

of cases that I've seen seem to me to be cases where the foreign

party is interested in reducing their own exposure to the risks of

the local business environment and increasing the incentives for in-

country management to maximize efficiency. This reasoning for me

involved working backward from the argument that the vertical

integration literature gives for why multinationals would want to

have actual ownership over production in foreign countries instead of

buying from the market.

The "dau tu chui" instances seem like a step from integration towards

the market aimed at keeping the advantages of integration but

reducing its disadvantages. In these cases, the foreign party may be

providing all of the imported inputs and buying all the output (and

possibly even providing the loan for startup capital... though I

doubt its ever full 100% because foreign party's would always rather

find a domestic partner willing to invest some risk of their own into

the venture), but the Vietnamese ownership still increases their own

profits if they find ways to reduce costs. Naturally there's a

constant situation of bargaining going on, whereby if the foreign

party learns of the cost savings they may use their power as input

provider and output market to squeeze these margins back to minimal

levels. At the same time, there's also a possibility that, over

time, the domestic partner diversifies and the original "dau tu chui"

conception that the foreigner had is no longer reflective of reality.

On the language issue, I think to a certain extent the word reflects

widespread Vietnamese cynicism about successful entrepreneurs. It

reminds me a bit of the glee with which the media took up the idea

that new companies were "cong ty ma" that were formed only to get VAT

receipts and cheat the state.

Markus

FYI

There's a decent article on Chinese investment in Viet Nam in today's =ashington Post.

Probably not much new here, but worth reading:

http://www.washingtonpost.com/wp-dyn/content/article/2005/12/05/AR2005120=02098.html

The focus is on labor, Vietnam's workers' alleged "willingness to eat =ore bitterness", and some suggestion that, in some parts of China, =here are efforts to move "dirty" (i.e. polluting) industries southward.

Perhaps there is some relation to "dau tu chui" too...since one might =ssume at least a portion of Chinese investment is facilitated by locals =ith ethnic or other ties to China...

Cheers

Jonathan D. London, Ph.D.

Assistant Professor of Sociology

Nanyang Technological University

Singapore

I saw this too. The problem is that, as the fine print in the article

admits, there really isn't that much (mainland) Chinese FDI in Vietnam

yet, at least not in the sectors where poor working conditions and labor

relations are common. That's still dominated by Koreans, Singaporeans

and Taiwanese. If the author is intent on finding some hidden Chinese

plot to take over SE Asia, there's much more fertile ground in looking

at Chinese exports (dumping?) of cheap consumer goods (where do all

those motorbikes come from anyhow?). And agricultural trade, which goes

both ways: much of the fruit on sale in Hanoi this time of year comes

from China, but meanwhile there appears to be growing contract farming

in VN to meet Chinese orders. I observed some of this recently at an

agricultural training center in Ninh Binh province. In northern Laos,

it's already widespread.

I'd also question the author's assumption that VNese labor laws and

standards are behind China's. The opposite may well be the case. True

that VNese wages are lower, but that's a different matter. In any case,

it's a more complicated picture than the Chinese-led race to the bottom

depicted in the Post. Or maybe just my idle hopes that Hanoi doesn't

look like a Chinese city ten years from now!

Andrew

I'd be terribly worried if my boss should tell me that

I "don't eat bitterness." This word is directly

translated from Mandarin /Chinese -and if literally

read with Western commonsense will be totally

negative. (The history of the Warring States will be

able to give a better insight to the positiveness of

this term).

We cannot assume that VN signed away their rights to

decide which FDIs to accept or reject. "Dau tu chui"

makes a lot of sense when barriers are erected-and

which sectors they are I should not pinpoint here in

case I am alleged of making allegations. I think

talking to practising consultants will help a lot.

All the best,

Grace

Regarding Andrew's hunch and the topic under discussion, VSG members might find useful the article "The Impact of the State on Workers' Conditions - Comparing Taiwanese Factories in China and Vietnam," by Anita Chan and Hong-zen Wang, in Pacific Affairs, 77 (Winter 2004-2005): 629-46.

Ben Kerkvliet

The article Ben refers to is on line at

http://www.global-standards.com/Resources/ChinaVietnam-ChanHongZen.doc

It is quite an extraordinary piece, and flies in the face of the assumption that labour standards are lower in Vietnam than China just because the country is poorer. Also, reading bao Lao Dong every day and watching how the VGCL - itself led by the Communist Party - reports favourably on the various strikes around the country - including even in state firms - certainly gives one a very different picture to what I nunderstand about the situation in China

Michael Karadjis