Despite its planned investment of HK$2 billion in Vietnam, Lee & Man Manufacturing says the country's overheating economy will have a limited impact on the group's business.

China's leading containerboard producer, based in Hong Kong, says its outlook on Vietnam is still optimistic.

Operations there are still expected to turn a profit by exporting paper to other markets with robust economies.

Raymond Lee, chief executive officer of Lee & Man, said: "We have recently heard lots of negatives news about Vietnam - the deteriorating economy and the soaring inflation that will inevitably have a negative impact on our business - but the output of our factory in Vietnam accounts for only a small fraction of the group's total turnover".

Last summer, Lee & Man announced its HK$2 billion Vietnam project, which includes two factories to produce containerboard and pulp, as well as a power plant.

The project has been delayed for several months, and the plants will start production in June 2009, Lee said at a press conference yesterday.

He admitted that the company is having difficulty initiating business in Vietnam - where many areas are underdeveloped and the country doesn't have sound infrastructure and facilities.

With a sharp deterioration in the country's fiscal position, and a high inflation of 25 percent, leading credit-rating firms worldwide have downgraded their Vietnam forecasts.

Fitch Ratings lowered the economic outlook on Vietnam from stable to negative, saying the country's public finances will deteriorate next year, and added that authorities didn't deal with the inflation problem urgently enough.

Moody's also downgraded its outlook on Vietnam from positive to negative last month, citing the country's alarming inflation and fiscal conditions.

Lee said the basic investment-environment elements in Vietnam are still favorable for investors.

Exporters enjoy a better tax rate than in China, where paper exporters are charged a 17 percent exporting tax.

Companies are also able to pay workers less in Vietnam.

According to forecasts by the Vietnam Paper Association, local demand for packaging paper material will reach 1.15 million tons in 2010.

By that time, Lee & Man's plant could meet nearly one-third of that demand, according to the company.

"We have many customers moving their manufacturing bases to Vietnam," Lee said. "HK$2 billion is not a small sum, so we carefully studied the market before we made that investment decision."

(China Daily 06/17/2008 page2)