State-Owned Enterprise Reform in Viet Nam: Progress and Challenges

Abstract

The state-owned-enterprise (SOE) sector is one of pillars in Vietnamese economy. It accounts for 28% of GDP, contributes nearly 30% of the state budget (General Statistics Office 2018), comprises 17% bank credit, and at the same time this sector is responsible for 60% of non-performing loans in the economy (Phang 2013). In order to achieve the goal of being a market-based economy with a socialist orientation, the Government of Viet Nam has encouraged the active participation from the private sector in coupling with SOE reform to enhance their effectiveness and efficiency since the 1980s. Over the past 30 years, SOEs have contributed noticeably to the achievements of the “Doi Moi” which lifted the country out of socioeconomic crisis to move to the era of industrialization and modernization under the socialist orientation. However, this transition has posed enormous challenges to SOEs that adversely impact on the sustainability of economic development due to the low speed of their reforming and restructuring. Through the 30-year SOE privatization, the number of SOEs has declined significantly and they now tend to focus on crucial and core sectors of the economy, including electricity, minerals, petroleum, finance, food and telecommunications. There are successful cases of post-privatized SOEs, with improvement in enterprises’ profitability and competitiveness; expanded production capacity; raised expertise and management competency; and some new industries and enterprises have been gradually formed with modern technology and advanced management. At the same time, the privatization process has encountered a number of impediments from the complexity of enterprise valuation, a lack of stringent regulations in information dissemination, a defective and deficient performance evaluation system and a lack of enabling stock market. This paper evaluates the performance of SOE reform in Viet Nam, clarifying its hindrances and drawbacks, and then proposes possible solutions to foster the SOE privatization process, replace the ownership capital of government effectively, and to shift to a more efficient and diversified economic system.

Appendix

1.1 Summary of Evolution of Law Regulating SOEs in Viet Nam

Year of issuance	Name of law	Main content	Definition remarks
1995	Law 1995 39_Law on State-owned Enterprises	SOEs were defined as an economic organization, which is capitalized, set up, organized and managed by the state. The law also classified SOEs into two types: (i) state business enterprises, which operate on a profit basis and without subsidies; and (ii) state public service enterprises, which operate in accordance with social and security policies of the government and are eligible for subsidies.	No mention of the share of state-owned capital in total of enterprise capital
2003	Law 14/2003/ QH11 on state-owned enterprises	SOEs are not only enterprises with 100% state capital, but joint-stock and limited liability companies with a dominant state share (higher than 50%) are also classified as SOEs. However, the law on SOEs only applied to enterprises with 100% state capital. Other kinds of SOEs that are joint-stock or limited liability companies have been regulated by the 1999 law on enterprises	Clearer in determining the share of state-owned capital in total of enterprise capital. However, there is a separation among which type of SOEs (exact 100% or less than 100%) is regulated in which law.
2005	Law on enterprises 60/2005/QH11	SOEs were defined as enterprises of which the state owns over 50% of charter capital. The corporate forms of SOEs included: One member limited liability company (i.e., an SOE of which its capital is 100% owned by the state); joint-stock company and limited liability company with more than one member.
2014	Law on enterprises 68/2014/QH13	State-owned enterprises are defined as those “fully owned by the state”, instead of “more than 50%” as prescribed previously. In addition, the 2014 law on enterprises also imposes stricter corporate governance requirements on SOEs. According to the law, SOEs must conduct periodical and extraordinary disclosure of various information.	This law regulates that only 100%-state-owned is a SOE, which profoundly affects the number of SOEs in the country.

1. Source: Government of Viet Nam (1995, 2003, 2005, 2014b)