WHEN the Graig shipping group, founded in Cardiff in 1919, sought a yard to build its next generation of cargo vessels, it turned to a new, aggressive entrant to the shipbuilding market — Vietnam.

The first of Graig’s 16 bulk carriers slid down the launchway recently to the applause of British engineers and executives from Vinashin, the Vietnamese state shipbuilder that did the job at a lower cost than competitors in China.

It was a giant leap for Vietnam, which is on the threshold of entry to the World Trade Organisation as its 82m people seize the chance of economic reform to remake a nation torn apart by war only 30 years ago.

The British shipbuilding contract, worth £260m, was exactly the sort of deal that policymakers in Hanoi want to see — a marriage of foreign expertise and investment with Vietnam’s low labour costs, work ethic and quest for innovation.

And British financial services were able to benefit when Vietnam decided to launch its first sovereign bond issue to raise £400m to fund the modernisation of Vinashin. “Once it takes the plunge, Vietnam can enter new sectors with astonishing rapidity,” said Britain’s ambassador to Hanoi, Robert Gordon.

Cheap exports of shoes, textiles and electronics are only part of the story. Vietnam exported £4 billion of crude oil last year and has become a player in commodity markets for coffee, rice, fish and seafood.

This weekend the Vietnamese are playing host to leaders from Asia and the Pacific, together with chief executives from dozens of multinationals, at a summit intended to showcase the nation’s desire to be open for business.

But as George Bush, China’s Hu Jintao and Vladimir Putin of Russia exchange diplomatic pleasantries, the businessmen are more cautious — with good reason.

Vietnam’s first round of reforms ran into the sand. At first they were beset by ideological struggles inside the Communist party and rampant corruption. Then they were wrecked by the Asian financial crisis of 1997. Many foreign companies, disillusioned, packed up and left.

“A lot of you may have painful memories of burnt fingers from the mid-1990s, But Vietnam is now coming out of that shadow,” Gordon told executives recently.

The roll call of British companies already there, managing some 75 projects, testifies to the business community’s willingness to give Vietnam a second chance. They include HSBC, Standard Chartered, Prudential, Shell, BP, Glaxo Smith Kline, Tate & Lyle, Premier Oil and P&O Ports. Rolls-Royce is opening an office in Hanoi to boost its marine business, while accounting and legal firms are busy with work generated by reform and foreign investment. ()

In essence, the Communist government, led by Nguyen Tan Dung, the prime minister, hopes to emulate the Chinese model of a liberalised economy kept firmly under a one-party political system.

A new generation of leaders has emerged, yet they remain the heirs to an intense nationalism forged in centuries of rivalry with China, colonial rule by France and war against America — a heritage that makes it unlikely that the state will relax its control over key sectors of the economy.

A recent example came when the authorities detained four employees of ABN Amro, the Dutch bank, after a disputed foreign-exchange trade with a state-owned Vietnamese bank, Incombank, which cost the latter £2.9m. ABN Amro said it would defend a lawsuit demanding return of the money, which it maintains was a legitimate transaction. The errant employee at Incombank, however, reportedly faces execution by firing squad if convicted of corruption.

The ABN Amro issue — mixing allegations of corruption, arbitrary legal action and suspected bias against foreigners — epitomises the reservations felt by many firms. Nonetheless, trade negotiations for Vietnam to become the 150th member of the WTO paved the way for reforms that should ensure a better deal for foreign investors.

Vietnam is expected to clock up growth of 8.2% this year — second only to China and equal to India — while its exports jumped by a quarter in the first 10 months.

Entrepreneurship is blossoming, with 40,000 private companies launched last year alone. The Ho Chi Minh City stock index — one of the more exotic emerging markets — is up more than 60% this year.

The population is highly literate and imbued with a traditional Confucian respect for education — one reason, perhaps, why Intel has just committed up to £500m to build the world’s largest computer-chip plant in Vietnam. Hanoi’s record of raising people out of poverty is excellent: the percentage of those existing on less than a dollar a day has fallen from 51% to 8% in 15 years.

There is no sign of cultural or popular hostility to foreigners, perhaps because more than half of Vietnam’s people are under 25, an internet generation with no memory of the decades of war.

Vietnam even benefits from the 2m wartime exiles who sought refuge overseas. Nowadays they send home annual remittances of more than £2 billion, amounting to some 8% of gross domestic product.

The thriving underground economy — by some calculations equal to half the “official” one — also puts spending money into people’s pockets, which is fuelling a consumer boom. Some 100 new cars and 500 motorcycles hit the streets of Ho Chi Minh City every day.

Trade, aid, remittances and foreign investment leave Vietnam with a balance-of-payments surplus. It is certain to emerge as a formidable competitor to Thailand, Malaysia and the Philippines. Not a tiger, perhaps, but unmistakably a growing dragon.