Japan Prepares to Pump Money Into Vietnam : Trade: Tokyo is extending aid in violation of a U.S.-led embargo. Business leaders see the move as a green light.

Japan is laying the groundwork for major investments in Vietnam, a nation many here believe will be Asia’s next high-growth economy.

Japan’s bilateral trade with the Indochinese nation now comes to just $900 million, and Japan is only the fifth-largest investor there--behind Taiwan, Hong Kong, France and the Netherlands.

But in recent weeks the Japanese government has made a significant shift in its Vietnam policy--a change many Japanese business leaders say provides the opening they needed to step up activity in Vietnam.

Breaking ranks with the United States in its economic embargo of Vietnam, the Japanese government two weeks ago said it will extend $370 million in economic aid to Vietnam--restoring an assistance program cut off in 1979 when Vietnam invaded neighboring Cambodia. Japan also said that it will work with France to help the communist nation renegotiate its foreign debt.

“This is the go sign the private sector has been waiting for,” says Wahiko Miyake, a former Japanese ambassador to Singapore who is now a private consultant. “It’s the government’s signal that Vietnam is safe.”

Miyake predicts significant Japanese investments in natural resources such as oil, coal and fisheries as well as in textile production.

Vietnam was quick to react to Japan’s friendly overtures, presenting a list of 548 projects--costing about $6.4 billion--in which it would welcome Japanese participation. Included are a new port and telecommunications system, and proposals to rebuild roads, railroads and the Ho Chi Minh international airport.

Japan will send a delegation to Vietnam in January to investigate whether it should finance the projects. In the past, the Japanese government’s financial support for foreign ventures has resulted in Japanese companies gaining a significant share of the contracts.

At the moment, Japanese investment in Vietnam consists of small projects. For example, Marubeni Corp. is a partner in a suit factory in Ho Chi Minh City, and Nissho Iwai Corp. has a small operation making jackets and coats from textiles imported from Japan and Korea.

New investments could be substantially larger. Mitsubishi Corp. is planning to build a large cement factory in cooperation with Vietnamese authorities. Kyoei Steel is proposing a plant to produce steel bars and wire rods in a joint venture with Vietnam’s public steel corporation.

Japanese trading companies are joining with Western companies in bids for oil exploration rights. “Vietnam has the only remaining large reserve of oil in Asia,” says Atsushi Oi, an official in the Ministry of International Trade and Industry’s trade policy section. “Indonesia is running out.”

One obstacle to increased Japanese investment is Vietnam’s poor infrastructure. “When we invest, we invest for the long term. So, it takes time,” Oi says. “Companies want to make sure there are concrete plans to provide sufficient electricity and water. If the electricity stops working after a couple of years, you can’t just pull out.”

Another obstacle is the continuing U.S. economic embargo of Vietnam.

“We need a broad effort to support infrastructure development through institutions like the Asian Development Bank,” Oi says, noting that aid from international bodies, such as the International Monetary Fund, require U.S. approval. “I’ve been to Hanoi, and it’s going to take a huge effort. Japan can’t do it alone.”

That the Japanese are reluctant to plunge too deeply into Vietnam before the embargo is lifted should comfort U.S. companies fearful that other nations’ firms will become entrenched in Vietnam before U.S. firms are allowed to go in.

The U.S. government may be close to lifting the embargo because of Vietnam’s increased cooperation in accounting for U.S. soldiers missing in action from the Vietnam War.

On Saturday, U.S. Sens. John Kerry (D-Mass.) and Thomas A. Daschle (D-S.D.), following a five-day visit to Vietnam, called on President Bush to ease the embargo on Vietnam, citing that country’s help on the MIA issue.

Vietnam is counting on the lifting of the embargo to gain foreign help. It has drawn up an $11-billion, 10-year plan for investments that it hopes to finance with foreign capital.

The first five years of the plan, which will end in 1995, call for an investment of $3 billion to develop oil and gas resources.

Nearly all of Japan’s major banks are making preparations to open representative offices in Vietnam, the first step toward establishing full branches. The move is in line with a broader trend that has Japanese bank assets leaving the United States and Europe for faster-growing Asian countries.