VIETNAMESE INVESTMENT ENVIRONMENT – IN COMPARISON WITH OTHER ASIAN COUNTRIES

2.1. Current situation and rankings of Vietnamese investment environment2.1 Current situation attracting foreign investment in Vietnam: 2.1.1. Current situation attracting foreign investment in Vietnam the previous year: With the political - social stability, economic growth and young, hardworking workforce, Vietnam is considered a potential market for foreign investors. Attractive investment environment of Vietnam, especially labor costs and a stable political situation, are trying to convince foreign companies to choose this place as a basis for regional investment. But beside that there are still many problems. For more than 25 years of innovation, economic growth in Vietnam has continued at high levels, approximately 7%. Investors around the world were interested in Vietnam market. According to data from GSO & Vietstock forecast, we can see the total FDI and ODA in Vietnam over the past year as follows: Feature Unit 2007 2008 2009 2010Implemented FDI

Billion USD 21.34 72.00 21.50 35.00

Disbursement FDI

8.03 11.70 10.00 12.00

Committed ODA

3.75 5.03 5.42 8.10

Disbursement ODA

2.00 2.20 2.50 2.80

Source: GSO and Vietstock Forecast

Registered FDI capital in Vietnam has constantly increased over the years: in 2007 it reached USD 21.3 billion, contributing 16.3% of the national GDP; in 2008 this figure amounted to 72 billion dollars. However, the influence of the economic crisis makes Vietnam FDI reduce to 21.5 billion dollars in 2009, only 29.86% compared to 2008. Overcoming the crisis, FDI can reach $35 billion in 2010, committed ODA also increased continuously at a rate relatively stable over the years: from 3.75 billion in 2007 increased continuously until 2010, reaching $ 8.1 billion. Generally, the numbers assessed by the investors, Vietnam is an attractive destination. Proportional contribution to the total GDP of foreign investment in Vietnam has constantly increased over the years. As we know from 1996, investors tend to focus on building infrastructure, the labor intensive industries, the production of goods for export and the production of goods for import substitution. In recent years, the number of project which has 100% foreign capital also began to rise. Foreign investment projects in Vietnam under licensed BOT also increased significant.

FDI inflows into Vietnam in the period 2008-2013 fluctuated over the years. According to the Ministry of Planning and Investment, FDI inflows increased for 3 consecutive years and in 2013 even though Vietnam's economy and the world is difficult, but we achieved very good results in attracting FDI. In particular, Vietnam's FDI in 2013 reached nearly $ 22 billion in registered capital, up 54% compared to 2012; disbursements higher, up to $ 11.5 billion. In 2008, FDI into the country increases particularly strong because Vietnam has joined the WTO to Vietnam market more open to international investors and investment environment is also somewhat more complete. In 2009, FDI flows into Vietnam fell sharply, with only 30% compared to 2008 due to the impact of the world economic crisis. Between 2009 and 2013, FDI into the country tends to decrease; only FDI in 2013 was only increased. Especially in our country's FDI reached a record in 2008, reaching $ 64 billion. Currently, Vietnam has attracted nearly 40 countries around the world to invest in Vietnam. Maybe at some countries: the United States among the leading foreign investors in Vietnam.

Specifically, according to the FIA, within 7 months, HCM City attracted nearly 550 million dollars from the newly licensed projects and the projects are adjusted to increase the capital. Compared to the current leading position of Thanh Hoa, the capital of Ho Chi Minh City is less than one fifth. Similarly, Hanoi in the past 7 months attracted more than 408 million dollars of new and increased investments, ranked No. 9. Although Hai Phong in the past two years has the changing attraction of FDI , over the past 7 months it only attracted about 380 million dollars, ranking 10th in the country. Da Nang also attracted the interest of foreign investors towards the central market, but in the past seven months the city also attracted about 27 million dollars ... Northern Region and North Central provinces such as Bac Ninh, Thai Nguyen, Thanh Hoa, ... are the "new land" has not been previously noticed however, that many land mass, population abundance , better incentives are attractive destination of investors. These big investors are familiar, such as Japan, Korea, Taiwan ... with this shift.

This explains why in the past 7 months provinces such as Thanh Hoa, Thai Nguyen, Bac Ninh has in turn led to attract FDI.

Provinces / cities to receive FDI in 2013

FDI in Vietnam (classified by economic sectors) in the first 6 months of 2014

Obviously the majority of FDI mainly in the processing industry reached $494 million; FDI in wholesales, retails and fix reached $83 million, specialized activity and technology science reached $74 information and media reached $63 million r; and investment in the construction sector reached $62 million. The last three sectors to attract FDI were healthcare and social help, electricity, air, water, conditioner and mining.

2.1.2 Current situation of attracting foreign investment into Vietnam in the first 6 months of 2014:

There are 41 countries and territories have invested projects in Vietnam in the first six months of the year, which led South Korea with a total investment of newly registered and additional capital of 1.55 billion USD.

Major FDI investors in Vietnam in the first 6 months of 2014

2.2 The position of Vietnam in the ranking of international investment environment:

2.2.1 According to the World Bank (World Bank):

Business Environment Report 2013 East Asia and the Pacific by the World Bank (World Bank), said Vietnam ranks 99 on the ease of doing business,this is the second year in a row, Vietnam rank remained the same. Out of the 10 index components are scored, only three indicators promoted (starting business, Dealing with Construction Permits, Paying Taxes ), the rest are relegated than ranking published last year. Report based on 9 indicators: Starting a Business, Dealing with Construction Permits, Getting Electricity, Registering Property, Getting Credit, Protecting Investors, Paying Taxes, Trading Across Borders, Enforcing Contracts, Resolving Insolvency

In East Asia-Pacific region, 17 out of 24 economies reformed to cope with the global economic crisis. Ranking of business environment in East Asia - Pacific region: Singapore is leading, Vietnam ranks 93.

2.2.2 According to the World Economic Forum WEF:

Vietnam's ranking in global competitiveness has dropped from No. 65 out of 142 economies ranked in the report of 2012, down to 75/144 in 2013. Therefore, Vietnam’s rank declined and were relegated in 2013, the competitiveness of Vietnam has gone bad under the perspective of the WEF. WEF assesses competitiveness of countries based on 3 main categories, including 12 different characteristics. The first category (the basic requirement) consists of 4 characteristics which are institutions, infrastructure, macroeconomic environment, basic education and health care. The second category (the efficiency improvement factor) consists of six characteristics - higher education and training, the efficiency of commodity markets, the efficiency of the labor market, the level of market development financial market, the level of technological readiness, market size. Next category (factors in the creation and development) consists of two characteristics: the development of enterprises, and creative energy. In each of these characteristics includes many different factors to rank, for example, the institutional characteristics include 21 factors, ranging from intellectual property rights to the level of investor protection. There are many factors that Vietnam’s is almost at the bottom, such as the level of investor protection, the burden of administrative procedures, auditing capabilities and reporting standards, the quality of infrastructure in general.

2.2.3 According to Forbes magazine:

Values Calculated December 2013Rank Name GDP

Growth (%)

GDP/Capita ($)

Trade Balance as % of GDP

Population (mil)

101Mozambique

7.5 600 -16.7 24.1

102Senegal

3.5 1,000 -9.4 13.3

103Sierra Leone

19.8 700 -25.7 5.6

104El Salvador

1.6 3,900 -4.3 6.1

Rank Name GDP Growth (%)

GDP/Capita ($)

Trade Balance as % of GDP

Population (mil)

105Malawi

1.9 300 -16.2 16.8

106Cambodia

6.5 900 -10.6 15.2

107Argentina

1.9 11,100 0.3 42.6

108Pakistan

3.7 1,200 -2.0 193.2

109Kyrgyzstan

-0.9 1,200 -8.4 5.5

110Uganda

2.6 600 -10.9 34.8

111Tanzania

6.9 600 -14.0 48.3

112Burkina Faso

8.0 600 -4.6 17.8

Rank Name GDP Growth (%)

GDP/Capita ($)

Trade Balance as % of GDP

Population (mil)

113Vietnam

5.0 1,500 -0.3 92.5

114Nigeria

6.3 1,500 2.3 174.5

115Ecuador

5.0 5,200 -1.7 15.4

116Egypt

2.2 3,000 -3.3 85.3

117Swaziland

-1.5 2,700 -0.1 1.4

118Burundi

4.0 200 -13.6 10.9

119Benin

3.8 800 -8.4 9.9

120Nepal

4.6 600 0.5 30.4

Rank Name GDP Growth (%)

GDP/Capita ($)

Trade Balance as % of GDP

Population (mil)

121Nicaragua

5.2 1,800 -14.0 5.8

122Bangladesh

6.1 700 -0.8 163.7

123Mali

-1.2 600 -13.8 16.0

124Bhutan

9.7 3,000 -14.2 0.7

125Suriname

4.5 8,400 12.2 0.6

126Cote d'Ivoire

9.8 1,100 -4.4 22.4

127Laos

8.3 1,400 0.3 6.7

128Honduras

3.3 2,200 -9.0 8.4

Rank Name GDP Growth (%)

GDP/Capita ($)

Trade Balance as % of GDP

Population (mil)

129Bolivia

5.2 2,600 1.0 10.5

130Gabon

6.2 11,200 20.4 1.6

131Algeria

2.5 5,500 9.6 38.1

132Iran

-1.9 6,900 -1.3 79.9

133Yemen

0.1 1,400 -6.1 25.4

134Mauritania

6.4 1,200 -15.7 3.4

135Cameroon

4.7 1,200 -3.8 20.5

136Libya

104.5 13,600 40.7 6.0

Rank Name GDP Growth (%)

GDP/Capita ($)

Trade Balance as % of GDP

Population (mil)

137Gambia

3.9 500 -16.9 1.9

138Ethiopia

7.0 400 -7.0 93.9

139Haiti

2.8 800 -19.1 9.9

140Venezuela

5.5 13,400 5.4 28.5

141Angola

8.4 6,400 14.4 18.6

142Zimbabwe

4.4 700 -5.3 13.2

143Myanmar

6.3 1,000 -1.7 55.2

144Chad

5.0 1,000 -18.2 11.2

Rank Name GDP Growth (%)

GDP/Capita ($)

Trade Balance as % of GDP

Population (mil)

145

Guinea

3.9 500 -31.1 11.2

The level of investor protection is also a factor that makes Vietnam down in business environment ranking (Best Countries for business) recently published by Forbes magazine. Vietnam's position in the business environment assessment of Forbes is 113/145. WEF also lists the factors that most interfere most business activities in the country ranked in the report. For Vietnam, the top 5 barriers including access to capital, inflation, low level of policy stability, inadequately trained labor force, and limited infrastructure. Forbes reports still appreciate Vietnam's economy in many ways as the Government's efforts in developing the economy and in the direction of the market and international integration, the percentage contribution of agriculture sector in GDP fell, the poverty rate is reduced, the growth stimulus is applied actively during the global recession... Although being higher than statistics of last year's report, the competitiveness of Vietnam under the WEF is still lower than most other countries in Southeast Asia such as Singapore, Malaysia, Brunei, Thailand, and Indonesia.

2.2. Determinants of Vietnamese investment environmentGOVERNANCE COMPONENT

Rule of Law

The Investment Law of 2005 provides the legal framework for foreign investment in Vietnam, together with its implementing decrees and circulars, regulates investment in Vietnam, including investors’ rights and obligations, investment incentives, state administration of investment activities, and offshore investment.The Investment Law also designates prohibited and restricted sectors for investment, but there are additional laws that apply conditions to investments in sectors such as mining, post and telecommunications, property trading, banking, securities, and insurance.

The Investment Law provides for five main forms of foreign direct investment: (1) 100 percent foreign-owned or domestic-owned companies; (2) joint ventures (JV) between domestic and foreign investors; (3) business contracts such as business cooperation contracts (BCC), build-

and-operate agreements (BOT and BTO), and build and transfer contracts (BT); (4) capital contribution for management of a company; and (5) merger and acquisitions (M&A). Foreign investors can, with restrictions, invest indirectly by buying securities or investing through financial intermediaries.

With the Investment Law set as the base legal framework, Vietnam revamped much of its legal system, making revision of other major legal framework, specifically Land Law, Civil Code, Labour Code, Law on Securities, Law on Competition, Enterprise Law in order to make investment environment more transparent and more conform to international standards in all aspects.

Take a specific example of The Land Law of 2003: it extended “land-use rights” to foreign investors, allowing title holders to conduct real estate transactions, including mortgages. Foreign investors can lease land for (renewable) periods of 50 years, and up to 70 years in some poor areas of the country. Certain foreigners can own apartments, durable construction, durable trees and planted forests for production purposes in Vietnam, but not the associated land.

Openness to International Trade and Business

Vietnam became the 150th member of the World Trade Organization on January 11, 2007. Vietnam’s commitments under the WTO increase market access for exports of goods and services and establish greater transparency in regulatory and trade practices as well as a more level playing field between Vietnamese and foreign companies. Vietnam undertook commitments on goods (tariffs, quotas, and ceilings on agricultural subsidies) and services (provisions of access to Foreign Service providers and related conditions). It has also committed to implement agreements on intellectual property (TRIPS), investment measures (TRIMS), customs valuation, technical barriers to trade, sanitary and phyto-sanitary measures, import licensing provisions, anti-dumping and countervailing measures, and rules of origin. Vietnam has made progress in implementing its bilateral (58 bilateral agreements) and international obligations; however, concerns remain in many areas such as protection of intellectual property rights (IPR) and effectiveness of the court/arbitration system.

The government of Vietnam (GVN) holds regular “business forum” meetings with the private sector, including both domestic and foreign businesses and business associations, to discuss issues of importance. Foreign investors use these meetings to draw attention to investment impediments in Vietnam. These fora, together with frequent dialogues between GVN officials and foreign investors, have allowed foreign investors to comment on many legal and procedural reforms.

World Bank’s Ease of Doing Business: Vietnam ranking

2013 Rank 2012 Rank Change in Rank

Overall 99 99 No change

Starting a Business 108 109 +1

Dealing with Construction Permits 28 27 -1

Getting Electricity 155 157 +2

Registering Property 48 48 No change

Getting Credit 40 38 -2

Protecting Investors 169 167 -2

Paying Taxes 138 153 +15

Trading Across Borders 74 74 No change

Enforcing Contracts 44 41 -3

Resolving Insolvency 149 145 -4

Under the current law of Vietnam, there are various preference and incentive to investors who have investment projects in preferential investment projects/factors such as:

Corporate Income Tax exemption (CIT) and CIT reduction from the first profit making year

A preferential CIT rate from 10% to 20%

Import duty exemption on the importation of equipment, material, means of transportation and other goods for implementation of investment project in Vietnam in accordance with the Law of Export and Import duties

Land rental exemption or Reduction

Accelerated depriciation of fixed assets

Losses carry forward

Political stability

As the world continues to reel from the economic slowdown and a possible crisis is looming , Vietnam still counts on political stability to continue attracting foreign investment.

Vietnam Political stability index (-2.5 weak; 2.5 strong): For that indicator, The World Bank (govindicators.org) provides data for Vietnam from 1996 to 2013. The average value for Vietnam during that period was 0.24 points with aminumum of 0.1 points in 2003 and a maximum of 0.46 points in 2005.

The index for Political Stability and Absence of Violence in Vietnam measures perceptions of the likelihood that the government of Vietnam will be destabilized or overthrown by unconstitutional or violent means, including politically-motivated violence and terrorism.

Inflation is at an all-time high due to the surge in oil prices, though pressure is now easing somewhat.

Improvements needed in educational and training systems.

Infrastructure that still lacks expressways, bridges, with inadequate ports, narrow and clogged roads.

Lack of supporting industries that could feed into the bigger industries being established in the country.

Corruption that is prevalent at many levels, as in many Asian countries.

Environmental issues are taken for granted, although this is gradually improving.

Lack of intellectual property rights, something that is improving but still remains an issue of big concern.

.

Taxation

Vietnam does not tax profits remitted by foreign-invested companies. However, companies are required to fulfill their local tax and financial obligations before remitting profits overseas and are not permitted to accumulate losses, and the government has shown a strong interest in investigating alleged transfer pricing. A new personal income tax regime placing Vietnamese and foreigners on the same tax rate schedule took effect in January 2009. The new law regulates all types of personal income, including income previously subject to other laws such as income from individual businesses and property sales. The lowest tax rate is 5 percent while the highest is 35 percent

Taken effect from January 1, 2014,the GVN approved to lower corporate income tax rates from the current 25 percent to 20 percent for small- and medium-sized enterprises and 23 percent for all other enterprises. Corporate income tax for extractive industries varies from 32 to 50 percent depending on the project, and can be as low as 10 percent if an investment is made in selected priority sectors or in remote areas. Incentives are the same for both foreign-invested and domestic enterprises.

Corruption

Corruption in Vietnam is due in large part to a lack of transparency, accountability, and media freedom, as well as low pay for government officials and inadequate systems for holding officials accountable for their actions. Competition among GVN agencies for control over business and investments has created a confused overlapping of jurisdictions and bureaucratic procedures and approvals that in turn create opportunities for corruption. The 2012 Transparency International Corruption Perceptions Index ranked Vietnam 123 out of 176 countries. These are some of the government’s actions to tackle with Corruption in oder to create transparency for investment climate:

- Vietnam’s 2005 Anti-Corruption Law requires GVN officials to declare their assets and sets strict penalties for those caught engaging in corrupt practices. The GVN signed the United Nation Convention on Anti-Corruption in July 2009.

-The Government has tasked various agencies to deal with corruption, including the Steering Committee for Anti-Corruption (led by the Prime Minister), Government Inspectorate, and line ministries and agencies

-Vietnam’s 2011 Provincial Competitiveness Index (the latest available), supported by USAID’s VNCI Project in partnership with the Vietnam Chamber of Commerce and Industry, surveyed 1970 foreign-invested enterprises and 6922 local enterprises regarding the number of firms that had paid informal charges to public officials. -

Index 2012 Rank 2011 Rank Change in rank

Transparency International Corruption Perceptions Index

123/176 112/183 -11

Heritage Foundation Index of Economic Freedom

136/179 139/179 +3

INFRASTRUCTURE COMPONENT

Infrastructure

Vietnamese government has recognized the importance of having efficient infrastructure of economic development. Accordingly, there have been various program to upgrade and expand the existing infrastructure. The main transport and communication network in Vietnam are road, railway, shipping lines and airlines. Sea transport remains an important aspect of trade both domestically and internationally.

Fiscal and Monetary administration

Vietnam’s financial system remains weak. A lack of financial transparency and non-compliance with internationally accepted standards among Vietnamese firms are among the many challenges facing the GVN’s plan to expand the domestic stock and securities markets as a venue for firms to raise capital domestically.

The banking sector is underdeveloped and is now the subject of a national restructuring initiative to address high non-performing loans (NPL), and other structural problems:

- March- 2012: 20% of Vietnamese residents had a bank account

-Most domestic banks are under-capitalized and reportedly hold a large number of NPLs

--Sep 30-2012: the official NPL rate was reported at 8.82 percent

Vietnam’s banking market is highly concentrated at the top and fragmented at the bottom. The four largest banks (Vietcombank, Vietinbank, the Bank for Agriculture and Rural Development, and the Vietnam Bank for Investment and Development) are state-owned or majority state-

owned, accounting for approximately 58 percent of domestic lending, 46 percent of the total assets, and 37 percent of equity capital in the banking sector as of December 2011

The GVN has initiated banking reforms intended to improve the efficiency of the banking system, especially via the equitization (or privatization) of state-owned commercial banks. Vietcombank and Vietinbank conducted initial public offerings (IPO) in December 2007 and December 2008, respectively, and both were listed on Vietnam’s stock market in 2009. The Vietnam Bank for Investment and Development was equitized on December 28, 2011. The state remains the controlling shareholder in these banks.

The Vietnamese stock market includes two stock exchanges: Ho Chi Minh City Stock Exchange (HOSE) and Hanoi Stock Exchange (HNX). As of December 26, 2012, 308 stocks were listed in the HOSE with total market capitalization of approximately $10.78 billion, and 395 companies were listed in the HNX with total market capitalization of approximately $4 billion. The majority of listed firms are former SOEs that have undergone partial privatization (“equitization”). A new trading floor for unlisted public companies (UPCOM) was launched at the Hanoi Securities Center in June 2009. At the end of 2011, 132 companies were listed on UPCOM. In September 2009, a separate trading floor for government bonds was established.

Millennium Challenge Corporation 2012 score (% ranking in peer group)

2011 score (% ranking in peer group)

MCC Government Effectiveness 0.6 (95%) 0.55 (95%)

MCC Rule of Law 0.43 (84%) 0.44 (81%)

MCC Control of Corruption 0.25 (65%) 0.20 (71%)

MCC Fiscal Policy -4.5 (30%) -5.3 (14%)

MCC Trade Policy 78.6 (90%) 79.6 (88%)

MCC Regulatory Quality 0.15 (60%) 0.15 (63%)

MCC Business Start Up 0.96 (86%) 0.96 (77%)

MCC Land Rights Access 0.68 (80%) 0.74 (85%)

MCC Natural Resource Management 53.6 (44%) 80.18 (97%)

MCC Access to Credit 44 (84%) 49 (91%)

MCC Inflation 18.7 (8%) 9.2 (32%)

Foreign Direct Investment 2005-2012(All monetary amounts in billions of U.S. dollars)Source: GVN’s Foreign Investment Agency

Number of new projects authorized

Authorized Investment (including new and extended projects)

Implemented Investment

2012 1100 13 10.52011 1091 11.6 112010 969 18.6 11

FDI by Major Sector 1988-2012(All monetary amounts in billions of U.S. dollars)Source: GVN’s Foreign Investment Agency

Number of Projects Authorized

Authorized investment

Industry and manufacturing 8132 106Real estate 389 50Hotels and tourism 332 10.6Construction 926 10.3Communications 815 6.1Extractive 77 3.1

Agriculture, forestry and fishery

503 3.4

Transportation and Warehouse

348 3.5

Finance and banking 76 1.3Education 160 0.4

2.3. Achievements and limitations of Vietnamese investment environment2.3.1 Achievements:International relations:As of July 2013, Vietnam has established diplomatic relationship with 184 countries throughout the world including permanent members of United Nations Security Council. Viet Nam joined the United Nations in 1977. Vietnam became an official member of the Association of South

East nations (ASEAN) in 1995, and has concluded a cooperation agreement with the European Community. Relationships with multi-national financial institutions such as the World Bank (WB), the International Monetary Fund (IMF) and the Asian Development Bank (ADB) have been re-established. Vietnam has been participating in the ASEAN Free Trade Area (AFTA) since 1996 and became a member of the Asia Pacific Economic Cooperation Forum (APEC) in 1998. Vietnam became an official member of the World Trade Organization (WTO) on 11 January 2007. In January 2008, the country started a two year term as an elected non-permanent member of the UN Security Council Vietnam signed the bilateral trade agreement (BTA) with the United States in 2000. Besides aspects off international trade, the BTA covers a variety of other areas, including intellectual property rights, trade in services, development of investment relations, business facilitation and the obligation to ensure transparency of laws and regulations. The BTA essentially constitutes a commitment by both countries to open their markets to each other.• Investment Guarantees:The Government of Viet Nam guarantees fair treatment for investors. Capital and other legal assets of investors will not be expropriated or confiscated by law or administrative measures and businesses with foreign-invested capital will not be nationalised. Foreign investors are allowed to remit abroad investment capital and profits, loan principal and interest, and other legal proceeds and assets. Expatriates working for businesses with foreign-invested capital or for a business cooperation contract (“BCC”) are permitted to remit their income abroad. The Government of Viet Nam respects intellectual and industrial property rights and the interests of foreign investors relating to technology transfers into Viet Nam. Interests of foreign investors are satisfactorily guaranteed in the event of adverse effects caused by a change in law through the application of a number of measures. The Law on Investment warrants that such changes will be disregarded or that disadvantages to the investor stemming from a change in law will be compensated by being permitted to amend its operations, to be entitled to compensatory tax exemptions, or by other means of compensation. Moreover, where more favourable provisions are enacted, existing investors will be entitled to the benefits stemming from such provisions. Disputes of foreign investors can be brought before Vietnamese arbitration centres or before a court, or foreign arbitration can be agreed to in a contract by the parties. By 2008, the Vietnamese Government had entered into bilateral agreements in trade relations with 89 countries including 72 on the “Most Favoured Nation” status (now known as “Normal Trade Relations”) and double taxation agreements with 45 countries. • Infrastructure Highway system The road system consists of over 200,000 km network including over 10,000 bridges. However road conditions are not ideal, less than half of the national highways have two lanes or more. In addition, road congestion is increasing in major cities. In recent years, the Government has

mobilised a significantly large amount of capital to upgrade the highway system with financial support from international lending agencies. Railway The rail network consists of about 2,600 km of single–track line covering several routes. There are about 260 stations in the network. The longest and most important route is the Hanoi – Ho Chi Minh City line, which stretches for 1,730 km. This line is now serviced by an express train, which makes the journey in approximately 29.5 hours. The lines connecting Viet Nam to China were re-opened a few years ago. Inland Waterways Often overlooked by foreign investors, the inland waterway system offers a cheap and flexible mode of transport. Viet Nam has more than 2,300 rivers and canals with total length of 198.000 km. Currently, the inland waterway has a system of over 61,000 km. The two major inland waterway systems serve as major transportation outlets. The first major inland waterway system is in the Red River area in the north which stretches for approximately 2,500 km. Along this system there are five main ports, of which Hanoi is the largest. The second major inlandwaterway extends 4,500 km along the Mekong River and its tributaries in the South and boasts about 30 ports, including Ho Chi Minh City. The larger river vessels are tug-drawn barges. Official estimates put the fleet capacity at about 420,000 tons with speeds ranging from 2 to over 20 km an hour. Smaller, wooden barges are mostly privately owned. Ports Viet Nam has eleven major seaports. Ho Chi Minh City serves most of the South and now boasts modern container loading facilities. Just a few hours’ drive from Hanoi, Hai Phong serves much of the North. Given the rapid rise in trade volume, increasing port capacity is a national priority. Airports and Civil Aviation There are three international airports: Ho Chi Minh City, Hanoi and Da Nang. Currently, the Government has significantly upgraded international airports to handle the increase in the volume of traffic associated with Viet Nam's invigorated economy. A new international terminal of the Tan Son Nhat airport in Ho Chi Minh City, capable of handling up to 10 million passengers a year was opened in December 2007. Noi Bai airport in Hanoi was upgraded, enlarged and completed for operation in 2002, construction of a second terminal is expected to start in October 2008 and completed in two years. Four new international airports are planned to be constructed in Phu Quoc, Dong Nai, Lao Cai and Quang Ninh provinces. Preparations for the new Long Thanh International Airport, 40 kilometers from Ho Chi Minh City in Dong Nai province is underway. The airport is scheduled to open in 2010 and by 2015 it will be further expanded to reach an annual transportation capacity of 80 to 100 million passengers, becoming one of the biggest airports in the region. In addition, there are 16 other domestic airports around the country.• Telecommunications

Viet Nam has made great strides in upgrading its telecommunications systems, although much remains to be done. In the last six years, the annual growth of the telecommunication market in Viet Nam reached 30%, specifically, in 2005 and 2006, the growth rates were more than 50%. In 2007 only, the number of new subscribers was 9.8 million (of which 8.8 million new mobile subscribers). The country has achieved more than 30 phones per 100 people with 19 million mobile subscribers. The Government’s relaxation with regard to international calls made over the internet and the spread of mobile phone subscriptions have further improved the telecommunication landscape, especially in rural areas. Internet usage has also rapidly risen and by the end of 2007 there were over an estimated 18.2 million users. • Banking and Finance Viet Nam’s credit institutions comprise State-owned banks, joint-stock banks, joint venture banks, 100% foreign-owned banks, branches of foreign banks, credit cooperatives, finance leasing companies and finance companies. The banking sector has been expanding at around 20% per annum since the beginning of the decade and has now reached some $80 billion in total assets. The four largest state-owned banks hold around 70% of the credit market. Lending grew by 37% in 2007 to reach some $60 billion, although the government is now seeking to impose tighter controls on borrowing as part of its plans to curb inflation. The loan to GDP ratio rose from 72% to 85% in 2007, balanced by an increase in the deposit to GDP ratio from 78% to 92%. The revenues of the top 10 banks increased by an average of more than 50% and their profits by an average of 195% in 2006, as demand soared, efficiency improved and costs decreased. In 2007, 9 new domestic joint stock banks have received the approval in principle for establishment. These new banks are expected to commence the operation in 2008. Under WTO commitments, Viet Nam committed to permit the establishment of 100% foreign-owned banks from 1 April 2007. The scope of operations of foreign bank branches, joint venture banks and 100% foreign-owned banks has also gradually expanded to comply with Viet Nam's commitments under the WTO and other bilateral/multilateral international agreements. After 5 years from the date of accession to WTO, Viet Nam must lift all restrictions to the right of a foreign bank branch to accept deposits in Vietnamese Dong from Vietnamese persons with whom the bank does not have a credit relationship.• Labour A large, skilled and inexpensive labour force is one of the main attractions for foreign investors in Viet Nam. Viet Nam’s population was estimated at approximately 85 million and is expected to grow to 90 million in 2010 with an annual growth rate of 1.6%. Around 60% of the population are under 25 years of age. Approximately 15.5% of the population are considered to be trained or skilled workers (with elementary qualifications or higher). This situation is improving as a result of updated training programs in training and education centres. There are currently substantial interest and new investments in quality training and education, a priority concern for the Government. The Labour Code issued in July 1994 (as amended in 2002 and 2006) has created a legal

framework that sets out the rights and obligations of employers and employees with respect to working hours, labour agreements, payment of social insurance, overtime, strikes, and termination of employment contracts, among other things. In addition, there are several specific implementing decrees and circulars guiding the provisions of the Labour Code.The law provides for an 8-hour working day and a 48-hour working week. An employer and an employee may agree that an employee work overtime, provided that the total overtime worked does not exceed 200 hours per year (in special cases, this limit may be extended to a maximum of 300 hours, subject to the approval of the relevant competent State authority). Beginning in 1999, a number of organisations such as Government offices, administrative agencies and socio-political organisations have implemented a 40 hour working week. Businesses in other economic sectors, including businesses with foreign-invested capital, are also encouraged to adopt a 40-hour week.• Intellectual Property In recent years, the Government has taken various measures to increase the legal protection of intellectual property and has created an environment of respect for intellectual property as compared to other neighbouring countries. Intellectual property rights are protected by the Civil Code (1995 and 2005), the Law on Intellectual Property (2005) and a host of subordinate legislation. Viet Nam is a long-time signatory to the Paris Convention, the Madrid Agreement on International Trademark Registration, and the Patent Cooperation Treaty (“PCT”) and became a member of the World Intellectual Property Organisation in 1976. On 27 June 1997, Viet Nam entered into an Agreement on copyrights with the US. According to the Viet Nam-US Bilateral Trade Agreement, Viet Nam is under the obligation to adhere to the Berne Convention. The National Office of Intellectual Property (“NOIP”) is the authority responsible for the registration of industrial property and for the resolution of disputes with regard to industrial property in the first instance. Foreign organisations and individuals seeking to register their industrial ownership should file their applications through an authorised agent, who will transfer their application to the NOIP. The Office of Copyright Protection under the Ministry of Culture, Sport and Tourism has also been established and is responsible for the protection of copyright. Works may be registered with the Office of Copyright Protection; however, registration is not a prerequisite for copyright protection.2.3.2 Limitations:High costs of doing business are the first disadvantage for the foreign investor. JETRO of Japan has regularly published comparison of business costs among regional countries and the cost on international telephone calls, Internet fees, and seaports are exorbitant. Vietnam still has a dual price system for foreign investor and applies another Law on Promotion of Domestic Investment for local investor. The Government has promised to gradually abolish the dual price system and unify the two investment laws. Corporate Tax and Personal Income Tax (50% of the gross income) are well above regional average. Infrastructure in Vietnam has been up-graded generally but the quality of some public goods and services is low. Low stability, fluctuating tension, sudden black outs in power supply create significant additional costs for users and prevent investors to move high-tech investment into

Vietnam. . The advantage of low labor costs is diminishing gradually because of increasing salaries but slower growth in productivity so that unit labor cost is gradually rising. Despite several amendments the Law on Foreign Direct Investment in Vietnam is not competitive compared to some other regional investment laws. Merger and acquisition are still very limited; a foreign investor is entitled to buy only to maximally 30% of shares of equitized SOEs, even in SOEs of the same industries where foreign investor could fully own an enterprise. This restriction seems to overlook the recent wave of merger and acquisition in FDI in the region. JV with domestic private company requires a special licensing procedure, more time consuming and more difficult. Distribution rights are restricted, imposed local content requirement can only be reached slowly due to the low development of domestic suppliers. Several industries and markets are not yet open to foreign investors. The only legally permitted form of company according to the Law on Foreign Direct Investment is until now a limited liability company, pilot project on equitization of JVs needs to be approved and implemented. The Stock Market in Ho Chi Minh-City is still very small and restricted to foreign investor. Despite tangible improvement in recent years, (especially the Enterprise Law and the liberalization on trade legislation have been highly appreciated), legal regulations in Vietnam are fast changing, less predictable and less consistent, especially in tax, foreign exchange, labor regulation, land and jurisdiction. Moreover, red tape, bureaucracy and low transparency are the big weaknesses of the business environment in Vietnam: law enforcement is not consistent and uniform in the country, the law interpretation and enforcement depend too much on local agencies or lower ranking state officials. For example customs officers in different seaports could apply to the same product different tax rate. (Shipment into a Vietnamese seaport has to finalize 127 different papers and documents compared to 7 at ASEAN seaports).The investment environment in province Binh Duong is very competitive, costs in term of time and money for doing business is about a half of that in some other provinces. Investors complain about extra law costs in transport, irregularities in inspections, tax collections and others. PERC has ranked Vietnam at 7th position among 11 regional economies in term of corruption (2002), as position 1 is the least corrupt economy. Intellectual property rights (e.g. copyright of software) is also a serious concern of foreign investors, especially from the US despite Government efforts and commitments The World Economic Forum has ranked Vietnam at position 62 among 73 economies in 2001 for competitiveness, a position Vietnam has to improve. Recently in 2002 Standard & Poor's, Moody and Fitch have up-graded Vietnam from B1 to BB in the financial risk rating, an encouraging sign of improvement.2.4. Asian investment environment2.4.1. The overview of Asian investment environmentIn 2013, the most notable changes in Asia Pacific Investment Climate Index are the growing attractiveness of Southeast Asia’s economies in relation to declining perceptions of the investment climate in China and India. China’s market access limitations, discriminatory

treatment against foreign enterprises, sharply rising costs and recent labor disputes, and India’s lack of political will to reform and open up the economy, along with corruption and excessive red tape are increasingly frustrating international companies.Within Southeast Asia, the Philippines, Cambodia, and Myanmar experienced the most significant gains. Singapore retained the first position in this year’s rankings for the second consecutive year.Indonesia and Vietnam have started to lose their luster to foreign investors, who are increasingly deterred by rising protectionism, corruption, and bureaucratic inefficiencies.The Philippines and Cambodia rose, partially capturing the benefits of China’s decline and eroding wage advantage. Myanmar’s ascent in the rankings indicates growing confidence in the country’s rapid economic and political transformation. Malaysia and Thailand continue to hover behind the East Asian economies of Taiwan, Japan, and South Korea for the third consecutive year; endemic corruption and political uncertainty constrain the countries’ ability to penetrate the top tier of the rankings.Against the backdrop of China and India’s political stagnation and economic slowdown, Southeast Asia is becoming an increasingly attractive destination for foreign investment. Despite remaining challenges, Southeast Asia’s rapidly expanding middle class, investments in infrastructure and human capacity, and increasing public pressure for government accountability and transparency are driving improvements in the region’s attractiveness to foreign investors. Preparations for the ASEAN Economic Community by 2015 and the Trans Pacific Partnership will require further liberalization and economic integration that are likely to sustain the Southeast Asian economies’ rise in the index.In its inaugural appearance in the index, Brunei secured the fifth position, in part as a result of its strong score on fiscal and monetary policy. Taiwan, Japan, and South Korea’s scores remain largely unchanged, although foreign investors are hopeful that Japanese Prime Minister Shinzo Abe’s economic strategy will reinvigorate the country’s stagnant economic growth.Sri Lanka dropped significantly, due to the rise of the Philippines and Cambodia and concerns over President Rajapaksa’s increasing consolidation of power. Sri Lanka joins Laos and Bangladesh at the bottom of the rankings. Although Laos’ accession to the WTO has led to improvements in its regulatory and tax regimes, foreign investors lack adequate legal protections and face the risk of expropriation. Bangladesh is similarly constrained by endemic corruption and severe weaknesses in policy making, infrastructure, in addition to widespread political violence and uncertainty.2.4.2. The investment environments in some specific countries2.4.2.1. Singapore

Singapore tops 2013’s rankings for the second consecutive year. Scoring consistently high across all six pillars, Singapore offers a stable political and legal environment and prudent macroeconomic policies that help attract foreign investment.Singapore’s trade regime is open and competitive, with few tariffs imposed on imports. Competitive tax rates, a transparent regulatory environment, and an efficient judicial framework further bolster foreign investment.Even so, Singapore slipped to second in political stability, mostly as a result of rising political activism and challenges to controversial domestic policies. In the most recent election, the People’s Action Party (PAP), which has ruled the country since independence, endured its worst performance in the polls since separating from Malaysia in 1965.Singapore also fell behind Hong Kong in openness to international trade and business. As Singapore seeks to address immigration concerns, increasing restrictions on hiring foreigners have impacted companies across industries, from construction to professional services.Singapore’s liberal immigration policies have become an extremely sensitive political issue in the city-state, as population density exacerbates competition for employment and housing, contributes to rising prices, and strains infrastructure. The publication of a government white paper in early 2013, which projects a rapid rise in the foreign population by 2030, instigated the country’s largest protest since independence.New licensing requirements for online news sites further riled some citizens, who faulted the government for using old tactics to control new media. The policy move also resulted in another large protest organized and supported by prominent online commentators and bloggers.The PAP is trying to balance local concerns without abandoning the policies that attract foreign investors and MNCs, the irony being that the PAP is, to some extent, a victim of its own success in bringing such high levels of economic growth. The PAP’s ability to navigate the growing social and economic challenges will underpin the country’s ability to continue to attract foreign investment in the coming years.

2.4.2.2. Thailand

Thailand remains in the middle tier of rankings, with political stability, fiscal & monetary administration and corruption remaining weak.The country has experienced relative stability since Prime Minister Yingluck Shinawatra’s decisive victory in 2011, however, accusations of widespread graft and the government’s renewed legislative push to amend the constitution threaten to further political conflict with opponents in the judiciary and elsewhere in the Establishment.Thailand maintains an open, market-oriented economy and encourages foreign direct investment to promote economic development and technology transfer. The Thailand Board of Investment is eager to attract major foreign manufactures and incentivizes companies with corporate tax exemptions, reductions of import duties, or deductions of infrastructure costs. As a result, foreign investment has returned with renewed confidence following the 2011 floods that damaged infrastructure and production facilities. High end manufacturing is surging, with Honda and Toyota recently opening assembly plants.Thailand’s geographic location and robust infrastructure continue to attract foreign investors, who use Thailand as a hub to connect to the surrounding Mekong subregion. The government recently announced plans to spend USD67 billion by 2020 on high-speed trains and mass-transit networks to facilitate greater domestic and regional connectivity. As Myanmar develops, Thailand is preparing to capture the spillover benefits, and officials continue to dream about developing and connecting to the Dawei Port in Myanmar.

Investors continue to cite Thailand’s efficient workforce and well educated population as a reason to invest. Yet, the further development of the Mekong subregion could undermine Thailand’s supply of cheap labor, as fast growing economies lure migrants home.Finally, Thailand’s score on fiscal & monetary administration declined amid the country’s controversial rice-pledging scheme, which has increased the cost of rice and eroded Thailand’s share of the rice market. The subsidies continue to dampen Thailand’s export competiveness and the rice-trading industry, leading to higher budgetary losses.

2.4.2.3. China

China dropped from ninth to eleventh in 2013’s index, resulting from declines in openness to international trade & business, political stability, and taxation.The perception of China’s openness to international trade and business continues to decline, and investors expressed frustration over market access limitations and discriminatory treatment, including state subsidies and exemptions for domestic companies. SOEs continue to dominate a number of sectors and receive preferential credit treatment by government banks.Upon taking office as General Secretary of the Party, Xi Jinping declared his commitment to fight corruption and pursued a high profile case against the Ministry of Railways. However, critics maintain that meaningful progress against government corruption cannot occur without greater government transparency and an independent judiciary.

China’s new leadership has also indicated that they intend to address structural problems with the economy, aiming to reduce reliance on exports and promote domestic consumption.China’s political stability score declined against the backdrop of growing public unrest. The widening income gap and frustration with corruption has fuelled several recent protests. The expansion of social media has empowered citizens to challenge government policies. With slowing GDP growth and growing domestic discontent, China is becoming increasingly assertive on the international stage.The past year also saw escalating tensions with neighbors over territorial disputes. This has been particularly true for China’s relations with Japan, contributing to the relocation of several Japanese firms from China to Southeast Asia. China has also strained relations with partners in Southeast Asia as a result of its aggressive positioning on territorial disputes in the South China Sea. Vietnam, Philippines, Malaysia, Indonesia, and Brunei have expressed increasing concern over the issue, which has created tension at ASEAN since the ASEAN Ministerial Meeting last year in Cambodia.Labor issues are also becoming more frequent. Ongoing labor unrest at Foxconn forced the company to nearly double wages, and in June, workers in a medical supply factory in China held their American bosses hostage for nearly a week.The investment climate in China is likely to become more complicated as investors increasingly face widespread pollution, higher wages, and extensive state involvement in the economy.

2.4.2.4. Cambodia

Although Cambodia rose in 2013’s rankings, the improvement is largely due to relative declines in in the investment climate in Vietnam and India, rather than changes in Cambodia’s investment climate. Cambodia scores relatively well on taxation, but remains weak across all other measures, particularly fiscal & monetary administration, corruption, and rule of law.Cambodia remains politically stable under the Cambodian People’s Party (CPP), which is expected to retain its unchallenged control in the upcoming national elections. Despite several government-led reforms to attract foreign companies, it remains to be seen whether these initiatives will be consistently implemented to improve the investment climate.Rule of law remains weak, but the government is taking steps to improve the judicial system for foreign investors. The National Arbitration Center offers businesses an alternative to Cambodia’s corrupt court system.Corruption remains the most problematic factor for investors in Cambodia. Although the 2011 anti-corruption law remains largely untested, some higher-level government officials, senior police officers, and private sector officials have been arrested. The government recently issued a list of fees for various government services— specifically under the departments of customs and taxation— to help companies avoid making informal payments that are illegal under the anti-corruption law. The Council for the Development of Cambodia also established a Complaints Desk as a vehicle for investors to report corruption.Nonetheless, Cambodia’s legal regime for investment is one of the most liberal in Asia Pacific, with the only distinction between foreign and local investors being the ability to own land. Even so, very long term leases are possible. Recent government investments in infrastructure aim to further accommodate foreign investors. Development in Sihanoukville will improve seaport and airport capacity, and discussions are underway to list the port on the stock exchange.An influx of investment in high tech manufacturing and food processing is helping Cambodia diversify beyond the garment industry. Considering the rising cost of doing

business in China, Japanese and Korean investors have relocated production bases to Cambodia, particularly in high-tech manufacturing components and electric motors industries. The high cost of power, however, continues to present a challenge to energy intensive industries.

2.4.3. A comparison between the investment environment of Vietnam and that of other countries in regionCompared to other countries in region, our investment environment has some specific advantages in terms of stable political system, cheap labor cost with higher competence. Thanks to these factors, in many years, Vietnam has successfully attracted an increasing amount of foreign capital. However, in long term, the policymakers should weigh carefully the strengths and weaknesses of the investment environment to improve and facilitate more foreign investment projects. Vietnamese investment environment’s competitive advantages come from 5 factors:Firstly, we have a stable political and societal environment. This is a very fundamental criterion to meet the demand of foreign investors about a favorable country where they can safely create lasting interest and long-term profitable relationship. Take Thailand for an example. Suffering from political crisis continuously from 2005 due to the conflict between the People’s Alliance for Democracy (yellow shirts) and the People’s Power Party governments (red shirts) in Bangkok, Thailand’s investment environment has severely lost its appeal in foreign investors with many indices showed a plunge in the investors’ confidence. During that time, many foreign businesses have planned to shut down their operations in Thailand and switch to Vietnam.Secondly, Vietnam has a favorable geographical location. Asia Pacific is a dynamic region with leading growth index in many years. Joining the global trend of trade liberalization and regional customs harmonization, since January 1st 1996, Vietnam has participated in AFTA (ASEAN Free trade area) and performed CEPT (Common Effective Preferential Tariff). This action has opened a new market of about 500 million people. Moreover, having common borders with many Southern provinces of China, Vietnam is an important link in the ASEAN – China relationship in some typical agreements such as

EHP (Early Harvest Program). Vietnam also plays a key role as a bridge of ASEAN – East Asia (China, South Korea and Japan) agreement.Thirdly, Vietnam currently enjoys many benefits of golden population structure. Over the last three decades, there have been dramatic changes to Viet Nam’s population structure. The number of people under the age of 15 has fallen substantially, while the number of people of working age (15 to 64 years old) has increased. Because of this, Viet Nam is now in a period known as the ‘golden population structure’, which means that for every two people or more working, there is only one dependent person. This demographic bonus provides Viet Nam with a unique socio-economic development opportunity. With the population of over 90 million (ranking 14 th globally), Vietnam is evaluated as a potential country of the development of labor market. In terms of human resources’ capacity, the quality of workers is improved substantially and is currently above the level of national economic development. Vietnamese people, especially young generations can easily acquire new knowledge and technology as well as adapt to the technology transfer activities with better foreign language skills. According to the ranking of United Nations in 2014, Vietnam stands at 121st position in terms of HDI (Human Development Index). This ranking is quite low compared to other countries in region:Country Ranking in HDISingapore 9Brunei Darussalam 30Malaysia 62Thailand 89Indonesia 108Philippines 117Vietnam 121Cambodia 136Lao People's Democratic Republic 139Myanmar 150

Source: Human Development Reports – United Nations Development Programme (Data in 2014)

Source: http://countryeconomy.com/hdi/vietnamThe wage cost for Vietnamese engineers is also more attractive to foreign investors than other countries in the region: only 60% of China’s and Thailand’s, 18% of Singapore’s and 3% of Japan’s. The labor cost for unskilled workers is also relatively cheaper:Country Average yearly wage of a factory worker

(USD/year)Vietnam 1,266China 1,992Thailand 2,792

The same pattern can be seen for skilled and management-level employees:Country Average yearly wage of a medium-

management employee (USD/year)Vietnam 8,897China 8,653Thailand 14,474

Fourthly, Vietnam has ample of natural resources including many strategic energy sources such as crude oil, gas, together with hundreds of agricultural and seafood. At present, Vietnam is among the leaders in exporting of many different kinds of commodities.Commodity Ranking of Vietnam in exportingRice 3 (after Thailand and India)Coffee 2 (after Brazil)Cashew 1

Pepper 1Frozen seafood 4 (after China, Norway, Thailand)Tea 7 (after Sri Lanka, China, India, Kenya,

United Kingdom, Germany)Source: http://www.mapsofworld.com/world-maps/top-coffee-exporting-countries.htmlUnited States Department of AgricultureFAOSTAT data, 2013 (last accessed by www.Top5ofAnything.com: January 2014), FAOSTAT DATABASE 2011http://www.statista.com/statistics/268269/top-10-exporting-countries-of-fish-and-fishery-products/Last but not least, the market economy mechanism has been established, developed and promoted in Vietnam recently towards trade and investment liberalization. This creates a fair and cooperative environment where businesses can compete and develop together. Up to December 2013, there are 42 countries recognizing Vietnam’s market economy status:No. Nations Date of recognition1      Angola April 7, 20082      Argentina April 17, 20103      Australia February 27, 20094      Bangladesh November 2, 20125      Belarus May 17, 20106      Brunei May 3, 20077      Cambodia May 3, 20078      Chile September 7, 20079      China October 200410      Congo October 29,201311 Germany March 10, 200812      Iceland July 3, 201213      India October 25, 200914 Indonesia May 3, 200715      Japan October 30, 201116      Kazakhstan November 1, 201117      Laos May 3, 200718      Liechtenstein July 3, 201219      Malaysia May 3, 200720      Mongolia November 21, 201321 Morocco December 9, 201322      Mozambique 201023      Myanmar May 3, 2007

24      Namibia November 20, 201325 New Zealand February 27, 200926      Nicaragua  27      Norway July 3, 201228      Pakistan August 29, 201229      Panama 201030     Peru December 3, 200731      Philippines May 3, 200732      Republic of Korea November 16, 200933      Russia July 6, 200734      Singapore May 3, 200735      South Africa May 24, 200736 Serbia 201337 Seychelles 201338      Sweden July 3, 201239      Thailand May 3, 200740      Ukraine November 6, 200741      Uruguay December 9, 201342      Venezuela  

Source: http://news.chinhphu.vn/Home/More-nations-recognize-VN-as-market-economy-in-2013/20142/20138.vgpThis list is going on, reflecting the efforts of Vietnamese governments to commit a fair, transparent investment environment for both domestic and international investors.The process of financial and monetary reformation has also boosted through banking system restructuring, flexible exchange-rate policy adjusting, tax code reforming and administrative-procedure computerizing.The policy to develop multi-sector economy has facilitated the optimal development of businesses in all sectors with no differentiation in treatment. This is the key factor to call for the maximum national resources in order to achieve many long-term goals.Regarding to production promotion policy, compared to other countries, Vietnam has successively initiated many differences and preferences to the benefit of businesses. For example, raw materials were exempted from import tax in 9 months successively. According to the circular No. 2/2014 of Ministry of Industry and Trade, starting from February 7th 2014, agricultural raw materials are exempted from import tax. In contrast, China has applied a tax rate of 17% for import and 9% for export raw materials. The diversified, multilateral foreign policy has opened great opportunities to expand and develop foreign business of Vietnam. Up to now, Vietnam has established economic - trade agreements with more than 150 countries and territories. Vietnam is also an active member in many regional and international trade organizations such as ASEAN,

ASEM, APEC and WTO. Not only that, Vietnam has signed many bilateral agreements with the US, EU, Japan, China and Russian Federation…The policy to attract foreign investors has also gradually completed towards the maximum benefit of investors with no discrimination to domestic investors. In terms of foreign investors, they also receive many favors from the policymakers to encourage their long-term interest and relationship with Vietnam. This is typically true after the enactment of corporate law and investment law in 2005.Accompanied 5 strong points, Vietnamese investment environment has 5 drawbacks that need addressing as soon as possible to attract more new investors and maintain existing relationships:Basically, Vietnam is still an agricultural country with limited economies of scale. Our industrial capacity is still in the developing process. The extent of modernization – computerization is much lower than that of other countries in the region. A lot of low-tech, outdated methods are still in use. The economic structure has seen many remarkable adjustments, but at a leisurely pace. Returns on investments in some fields do not live up to the investors’ expectation. According to the evaluations of many foreign investors, the economic and social infrastructure of Vietnam has not satisfactorily met the demand of development purposes. For example, Japanese investors stated that the fiber Internet connection fee in Vietnam is much more expensive than in other Asian countries. Supporting industry is much weaker than other countries with the similar base of development such as Thailand. Hence, our economy is not considered as “developed” although for many successive years, we enjoyed a high growth rate, only second to China.The system of economic law is still in the process of finalizing. There are actually some inequalities between businesses of different sectors. Some pivotal industries such as electricity, telecommunication, transportation,… are still under monopolistic status, reflecting many preferential treatments for state-owned corporations. Thus, it is quite difficult for both domestic and foreign investors to predict the legal consequences and regulations. Besides, it is undeniable that there are some points in the system of legal documents should be reconsidered and adjusted to harmonize with the international legal system.The procedural reformation does not match with the rapid rate of development of investment activities. To apply for a business license, investors must comply with a bulky system of procedures and fulfil many redundant fee obligations. Corruption is still commonplace and has not completely prevented and settled.The system of production factors’ markets, including capital market, labor market, real estate, scientific-technology market… has not developed simultaneously and

harmoniously. In fact, these markets can be evaluated as “under-developed” compared to other countries in region. Financial and banking services are not developed and are being reformed but at modest pace and level. The banking system is vulnerable due to high bad debt rates, interest rate risks and high exchange rate, as well as low level of monitoring and managing. The credit rating, despite some climbs recognized by Moody’s recently (government bond’s credit rating is from B2 to B1), cannot be evaluated as high.