Pestle Vietnam

Country Analysis Report: Vietnam Published 08/2011

© Datamonitor. This brief is a licensed product and is not to be photocopied

OVERVIEW

Catalyst

This profile analyzes the political, economic, social, technological, legal, and environmental (PESTLE) structure in the

Vietnam. Each of the PESTLE factors is explored in terms of four parameters: current strengths, current challenges, future

prospects, and future risks.

Summary

Key findings

The Communist Party of Vietnam has adopted a progressive approach; however, land seizures could lead

to civil unrest

The ruling CPV has not recently faced any serious threats to its power, and this situation is expected to remain the same

over the coming few years. The previous elections to the National Assembly were held in May 2007, and the cabinet was

instated in July 2007. Nong Duc Manh was re-elected as general secretary. Recently, the CPV of Vietnam held its congress

in January 2011, Nguyen Phu Trong replaced Nong Duc Manh as the new general secretary of the CPV. The latter retired

after 10 years in the post. The new general secretary of the CPV has said that tackling the economic problems in the

country is a priority. Nguyen Tan Dung, the current prime minister, is a reformist, and has been reappointed for another five

year term. However, the CPV is expected to keep its stranglehold on the country's political landscape for the foreseeable

future. The CPV is committed to combating the increasing levels of corruption, an attitude that is expected to show positive

results in the near term.

However, protests against land seizures are still put down ruthlessly by the country's security forces, increasing resentment

towards the government. Furthermore, there is civil unrest in the Central Highlands, which is home to a large number of

ethnic minorities. The Vietnamese government seizes land for development projects, often without paying adequate

compensation. This could fan widespread discontent, as the CPV does little to accommodate political grievances.

COUNTRY ANALYSIS REPORT

Vietnam

In-depth PESTLE insights

Publication Date: August 2011

Overview



Despite Vietnam's accession to the WTO, the possibility of state-owned enterprises defaulting is a cause

for concern

Vietnam’s accession to the World Trade Organization (WTO) in 2007 was the result of 12 years of negotiations, and was of

some political significance given that it marked the country's entry into the global economy. WTO membership has reduced

tariffs and restrictions on Vietnam’s exports to other member states, which has benefited the country. Vietnam has also

been better able to attract foreign direct investment since its accession. WTO membership has boosted the country’s

exports and helped it to become part of the international economy.

However, the Vietnamese government is coming under increasing pressure due to problems relating to debt repayment by

large state-owned enterprises. For example, in December 2010 Vinashin defaulted on the scheduled repayment of a

$600m syndicated loan received from international lenders. The government made a decision not to bail out the company

(being under no legal obligation to do so), and in adopting this approach has sent out a strong message to other state-

owned enterprises. However, the default by Vinashin has severely dented the image of the country in international financial

markets. The lenders might have thought Vinashin's structure meant it had an implicit state guarantee. The default is likely

to have a negative impact on the country, making it difficult for other state-owned enterprises to borrow in international

markets.

The country enjoys low unemployment levels, but the government continues to stifle religious freedom

Vietnam has consistently maintained low unemployment levels. The global financial crisis affected the country’s gross

domestic product (GDP) and increased unemployment from 2.3% in 2007 to 6.5% in 2009. Despite the increase, the

average rate of unemployment during 2002–09 was 3.1%, which is very low considering the massive growth of the

country’s population. This low unemployment rate is a significant achievement for Vietnam.

However, the government continues to deny Vietnamese citizens the right to freely practice their religion. Catholics from

Hanoi's Thai Ha parish in Vietnam protested in order to demand the return of property expropriated by communists in the

1960s. During this demonstration, the Vietnamese police are alleged to have assaulted activists who were participating in

peaceful prayer vigils. Such events have been a feature of the Vietnamese landscape for many years, with demands for the

return of confiscated property often quickly followed by state repression.

High-tech production is shifting to Vietnam; however, high piracy rates could deter investment

Manufacturers are choosing North Vietnam to manufacture products meant for the world market and, in particular, for

Southeast China. This is due to production costs being predicted to increase far more rapidly in the latter region than in the

former over the next 10 to 20 years. The first signs of this shift were seen in November 2006, when Intel Corporation

declared that it would increase its investment in an assembly-and-test facility outside of Ho Chi Minh City from the previous

figure of $300m to $1bn. This facility is expected to be the largest single factory in the Intel network. Production began in

2009, and the factory could employ as many as 4,000 highly skilled workers.

However, Vietnam has high rates of piracy, which could deter investment in research and development (R&D)-intensive

areas. The International Intellectual Property Association (IIPA) has put Vietnam on its watch list for allowing intellectual

Overview



property rights violations, which result in huge losses for companies. According to IIPA estimates, business software losses

came to $123m in 2008, up from $120m in 2007. This amount of piracy could deter investment in areas which involve high

levels of R&D.

Registering property is easy in Vietnam, but the state still has monopolies in many sectors

According to the World Bank’s 2011 Doing Business report, the number of procedures required to register a property in

Vietnam is nine, higher than the East Asia and Pacific regional average of 7.8. On the plus side, the number of days

required to register a property is 57, compared to the regional average of 86.7, and the cost of registering a property is

0.6% of its value, much lower than the 4.1% average. In this area, the country has done reasonably well compared to other

countries in the region.

However, Vietnam is still emerging from being a centrally planned socialist economy, with state-owned enterprises holding

monopoly positions. In industries such as electricity, aviation, and telecommunications government-run companies have

powerful monopolies, with market shares of at least 80%. The cement, sugar, banking, and petroleum sectors are also

heavily regulated, with state-owned entities having market shares of 10–40%. In all of the sectors where government-run

organizations enjoy a monopoly, prices tend to be exorbitant and the companies tend to be inefficient and uncompetitive.

The government must initiate measures to reduce regulations in some of these sectors, and actively support privatization in

order to foster competition and efficiency.

While Vietnam has a large forest area, the lack of concerted environmental action and awareness remains a

problem

A large percentage of the country’s land is covered with forests. In 2005, Vietnam’s natural forests were estimated at 9.5

million hectares, while planted forests are believed to extend to over 2.9 million hectares; altogether, forest covers 38% of

the land. In 2007, the government set an ambitious target of planting 200,000 hectares of new forests per year. This is

expected to increase the forest cover in the country significantly.

However, Vietnam lacks environmental integration at the planning and programmatic levels, a fact that can clearly be seen

in both the public investment planning process and in regional plans for land and resource use. A lack of awareness of the

environmental damage caused by sustained economic growth is cause for concern. There are no means available for

stakeholders to make government agencies accountable, which is another major challenge the country faces.

PESTLE highlights

Political landscape

Vietnam is a one-party communist state, and is led by a troika made up of General Secretary Nguyen Phu Trong,

President Truong Tan Sang, and Prime Minister Nguyen Tan Dung.

The Vietnamese government is growing concerned with the activities of Bloc 8406, a pro-democracy dissident

group. The group was named for the day on which it was founded: April 8, 2006. The group counts young,

educated professionals among its members.

Overview



Economic landscape

The global economic slowdown reduced GDP growth to 5.3% in 2009, before it recovered to 6.8% in 2010.

Datamonitor forecasts indicate that the growth rate is expected to decline marginally, dropping to 6.2% in 2011.

Rising oil and food prices increased inflation to 9.4% in 2010. Inflation reached 22% in July 2011, which poses a

serious threat to Vietnam’s economic stability.

Social landscape

Vietnam's GDP per capita increased at an average annual rate of 5.9% during 2001–06 in real terms. However,

income inequality remains high, and the country's Gini coefficient rose from 0.345 in 1990 to 0.432 in 2006.

Vietnam remains a predominantly rural country, although urbanization has increased following the initiation of the

Doi Moi ("renovation") economic reforms. In 2004, about 25% of Vietnam’s population was urban and 75% rural,

down from 85% in the early 1980s.

Technological landscape

A new technology research center will be built in Hanoi, with a projected investment of $350m sourced from

Japan’s Official Development Assistance program. The center will aim to effectively implement the country’s

space technology research and application strategy by 2020.

Vietnamese Prime Minister Nguyen Tan Dung has approved an investment of VND1.7tn ($87.2m) for the national

program on IT application in state agencies by 2015. The program targets IT infrastructure for the development of

e-governance and the provision of information and public services.

Legal landscape

Vietnam has differential tax rates ranging from 0% to 40%, and there are separate rates for Vietnamese and

foreign workers.

Environmental landscape

With the rapid development the country has experienced in the last few years, carbon dioxide emissions have

consistently increased. Indeed, emissions rose from 104.1 million metric tons in 2008 to 108.3 million metric tons

in 2009.

Overview



Key fundamentals

Table 1: Vietnam – key fundamentals

2009 2010 2011 2012 2013 2014 2015

GDP, constant 2000 prices ($bn) 58.8 62.8 66.7 71.2 76.2 81.7 87.7

GDP growth rate (%) 5.3 6.8 6.2 6.8 7.0 7.2 7.4

GDP, constant 2000 prices, per capita ($) 683.7 722.0 758.4 801.2 848.1 900.1 957.4

Inflation (%) 6.9 9.4 13.8 6.9 5.7 5.1 5.1

Exports, total as a percentage of GDP 66.7 64.2 65.3 66.4 67.5 68.5 69.4

Imports, total as a percentage of GDP 80.6 82.7 82.9 83.1 83.3 83.5 83.7

Mid-year population, total (million) 86.0 87.0 87.9 88.9 89.8 90.7 91.6

Unemployment rate (%) 6.2 5.1 4.8 5.0 5.0 5.0 5.0

Mobile penetration per 100 people 122.8 148.4 163.3 172.1 180.3 184.7 188.9

Source: Datamonitor D A T A M O N I T O R

Table of Contents



TABLE OF CONTENTS

Overview 1

Catalyst 1

Summary 1

Key Facts and Geographic Location 10

Key facts 10

Geographical location 11

PESTLE Analysis 12

Summary 12

Political analysis 13

Economic analysis 16

Social analysis 19

Technological analysis 22

Legal analysis 24

Environmental analysis 27

Political Landscape 30

Summary 30

Structure and policies 31

Performance 33

Outlook 34

Economic Landscape 35

Summary 35

Evolution 35


Performance 38

Outlook 48

Social Landscape 49

Summary 49

Evolution 49


Performance 52

Outlook 52

Table of Contents



Technological Landscape 53

Summary 53

Evolution 53


Performance 54

Outlook 55

Legal Landscape 57

Summary 57

Evolution 57


Performance 59

Outlook 59

Environmental Landscape 60

Summary 60

Evolution 60


Performance 60

Outlook 61

Appendix 62

Ask the analyst 62

Datamonitor consulting 62

Disclaimer 62

Table of Contents



TABLE OF FIGURES

Figure 1: Map of Vietnam 11

Figure 2: Vietnam – political events timeline 30

Figure 3: Vietnam – key political figures 31

Figure 4: Vietnam – historical GDP growth, 1991–2010 37

Figure 5: GDP and GDP growth rate in Vietnam, 2004–14 39

Figure 6: GDP composition by sector in Vietnam, 2010 40

Figure 7: Agricultural output of Vietnam, 2005–10 41

Figure 8: Industrial output of Vietnam, 2005–10 42

Figure 9: Services output of Vietnam, 2005–10 43

Figure 10: External trade of Vietnam, 2006–10 45

Figure 11: Consumer price index and consumer price index-based inflation in Vietnam, 2004–14 46

Figure 12: Unemployment and unemployment rate in Vietnam, 2004–14 48

Figure 13: Vietnam – composition of religion 51

Figure 14: Growth rate of mobile and fixed line subscribers in Vietnam, 2002–12 54

Figure 15: Internet users and usage growth rate in Vietnam, 2003–13 55

Figure 16: Carbon dioxide emissions in Vietnam, 2003–10 61

Table of Contents



TABLES

Table 1: Vietnam – key fundamentals 5

Table 2: Vietnam – key facts 10

Table 3: Analysis of Vietnam’s political landscape 13

Table 4: Analysis of Vietnam’s economy 16

Table 5: Analysis of Vietnam’s social system 19

Table 6: Analysis of Vietnam’s technology landscape 22

Table 7: Analysis of Vietnam’s legal landscape 24

Table 8: Analysis of Vietnam’s environmental landscape 27

Table 9: Mid-year population by age, 2010 50

Key Facts and Geographic Location



KEY FACTS AND GEOGRAPHIC LOCATION

Key facts

Table 2: Vietnam – key facts

Country and capital

Full name The Socialist Republic of Vietnam

Capital city Hanoi

Government

Government type Single-party communist state

Chief of state and head of government President Truong Tan Sang (since January 19, 2011)

Vice president Nguyen Thi Doan (since July 25, 2007)

Population 86,116,560

Currency Dong

Gross domestic product per capita (purchasing power parity) $3,100

Internet domain .vn

Demographic details

Life expectancy 72.18 years (total population)

69.72 years (men)

74.92 years (women)

Ethnic composition Kinh (Viet) 86.2%, Tay 1.9%, Thai 1.7%, Muong 1.5%, Khome 1.4%, Hoa 1.1%, Nun 1.1%, Hmong 1%, other 4.1%

Major religions (1999 census) Buddhist 9.3%, Catholic 6.7%, Hoa Hao 1.5%, Cao Dai 1.1%, Protestant 0.5%, Muslim 0.1%, none 80.8%

Country area 329,560 sq km

Languages Vietnamese (official), English (increasingly favored as a second language), some French, Chinese, and Khmer; Mon-Khmer and Malayo-Polynesian (mountain area languages)

Exports Crude oil, marine products, rice, coffee, rubber, tea, garments, shoes

Imports Machinery and equipment, petroleum products, fertilizer, steel products, raw cotton, grain, cement, motorcycles

Source: Central Intelligence Agency (CIA), The World Factbook D A T A M O N I T O R

PESTLE Analysis



Geographical location

Vietnam is located in Southeast Asia. The country shares sea borders with the Gulf of Thailand (to the southwest), the

South China Sea (to the southeast), and the Gulf of Tonkin (to the east). Cambodia and Laos lie to the west of Vietnam,

while China lies to the north.

Figure 1: Map of Vietnam

Source: CIA, The World Factbook D A T A M O N I T O R

PESTLE Analysis



PESTLE ANALYSIS

Summary

Vietnam has moved on considerably since the Vietnam War ended in a communist victory in the mid-1970s. A program of

liberal economic reforms dating back to the mid-1980s led to a strong growth performance during the 1990s. On the other

hand, political reform has been slower to materialize, with the communists’ monopoly on power still firmly in place. The

pace of economic reform received a boost in 2001 when the country signed up to a comprehensive package of reform

measures created in conjunction with the Bretton Woods international financial agreements. The same year also marked

the signing of a historic trade agreement with the US, finally normalizing trade between the erstwhile enemies. More

recently, the determination of the authorities to implement structural and economic reforms in the buildup to the country's

accession to the World Trade Organization (WTO), mixed with rising exports, contributed towards the economy recording a

compound annual growth rate (CAGR) of 13% during 2001–06. However, the global financial crisis impacted upon the

country, with the GDP growth rate dropping to 6.3% in 2008 and to 5.3% in 2009. The economy recovered in 2010, when

growth of 6.8% was recorded.

The global financial crisis also affected the country’s GDP, with unemployment increasing from 4.7% in 2007 to 4.8% in

2008. The average rate of unemployment during 2002–09 was 5.3%, which is low considering the massive growth of the

country’s population. With regards to technology, Vietnam has decided to build a new technology research center in Hanoi,

with a projected investment of $350m sourced from Japan’s Official Development Assistance (ODA) budget. The center will

aim to effectively implement the country’s space technology research and application strategy by 2020.

Corruption is perceived as widespread in the country. Transparency International’s 2007 Corruption Perceptions Index

ranked Vietnam in 123rd out of 180 nations, and in 121st position in 2008. The 2010 index ranked the country 116th out of

178 countries with a score of 2.7 (0 equates to highly corrupt, and 10 equates to free from corruption). The country faces a

serious challenge in that it lacks an independent judiciary. The CPV selects judges and vets them for political reliability. The

party also seeks to influence the outcome of cases involving perceived threats to the state or to the party’s dominant

position. Forests constitute 38% of the land area in the country, and in 2007 the government set an ambitious target of

planting 200,000 hectares of new forests per year. This is expected to increase forest cover in the country significantly.

PESTLE Analysis



Political analysis

Overview

Since the unification of Vietnam in 1976, the CPV has been in charge of the country. The government does not allow any

political dissent in the country, and jails political activists on a regular basis. Its decisions constitute national policy, which

the executive (Central Committee) and the legislature (National Assembly) branches are required to follow. The CPV has

not faced any serious threat to its power in the last few years, and is expected to continue to rule the country in the near

future. Previous General Secretary Nong Duc Manh was a supporter of pragmatic economic reforms. The party held its

national congress in January 2011. There have been reports that there is a struggle for power ongoing between

conservatives and reformers in the CPV.

Table 3: Analysis of Vietnam’s political landscape

Current strengths Current challenges

▪ Political stability and commitment to fight corruption ▪ Stifling of dissent

▪ Pro-democracy movements

Future prospects Future risks

▪ Improving ties with Cambodia

▪ Land seizures could lead to civil unrest

▪ Struggle for power between conservatives and reformers


Current strengths

Political stability and commitment to fight corruption

The ruling CPV has not recently faced any serious threats to its power, and this situation is expected to remain the same

over the coming few years. The previous elections to the National Assembly were held in May 2007, and a cabinet was

instated in July 2007. Nong Duc Manh was re-elected as general secretary. During his first term, which ran from 2001 to

2006, he focused on fostering unity and stability within the party, and he continued with the same policies in his second

term. Mr Manh was a supporter of reform, and sought to counter any attempt to roll back progressive motions by

conservatives within the party. The CPV is committed to combating the increasing levels of corruption, an attitude that is

expected to show positive results in the near term.

The CPV of Vietnam held its congress in January 2011, Nguyen Phu Trong replaced Nong Duc Manh as the new general

secretary of the CPV. The latter retired after 10 years in the post. The new general secretary of the CPV has said that

tackling the economic problems in the country is a priority. Nguyen Tan Dung, the current prime minister, is a reformist, and

PESTLE Analysis



has been reappointed for another five year term. However, the CPV is expected to keep its stranglehold on the country's

political landscape for the foreseeable future.

Current challenges

Stifling of dissent

Political dissent is suppressed in communist Vietnam. Six democracy activists were sentenced to up to six years in prison

for spreading propaganda against the government, by hanging pro-democracy banners on a road bridge in October 2009.

They were accused of being part of the banned pro-democracy group Bloc 8406. In December 2009, pro-democracy

activist Tran Anh Kim received a five-and-a-half-year jail sentence for subversion, after allegedly publishing pro-democracy

articles on the Internet. Tran Anh Kim was a former army officer and a member of the Democratic Party of Vietnam and

Bloc 8406, both of which are banned. Four activists, including prominent human rights lawyer Le Cong Dinh, were jailed on

charges of trying to overthrow the government in January 2010. Internet entrepreneur Tran Huynh Duy Thuc received the

longest sentence of 16 years. This is being viewed by human rights groups as a sign of an increasing clampdown on

freedom of expression. The suppression of political dissent – and the negative impact it has on the country in terms of the

global arena – continues to be a major challenge to the country.

Pro-democracy movements

The Vietnamese government is growing concerned with the activities of Bloc 8406, a pro-democracy dissident group. The

group was named for the day on which it was founded: April 8, 2006. The group counts young, educated professionals

among its members, and entered the limelight with the release of its Manifesto on Freedom and Democracy for Vietnam at

the time of the CPV's 10th national congress. Some of the demands of the group include the establishment of opposition

political parties, the demand for civil liberties, the drafting of a new constitution, and democratic elections for the National

Assembly. There are reports that the group has collected thousands of signatures in an online petition for political reforms.

Members of Bloc 8406 have been punished by the government, and some have been jailed by the country’s courts for

expressing dissent. However, its members continue to protest peacefully against the communist government.

Future prospects

Improving ties with Cambodia

Vietnam and Cambodia have agreed to expand their co-operation in trade, investment, mining, and transportation, and to

boost bilateral trade so that it could reach $2bn by 2010. According to the Vietnamese Embassy’s Trade Promotion Office,

bilateral trade in 2010 reached $1.8bn, up from $1.3bn in 2009. The two countries also decided to co-operate in preventing

terrorist acts, transnational crimes, contraband, and drug and human trafficking. The prime ministers of the two countries

were present when, in November 2008, five agreements were signed relating to visa exemption, goods transits, the linking

of railways, co-operation between the Vietnamese Ministry of Information and Communication and Cambodia's Ministry of

Information, and a pact between Voice of Vietnam and Cambodia's National Radio. Vietnam’s exports to Cambodia

increased by around 36% in 2010, reaching $1.5bn, up from $1.14bn in 2009; meanwhile, bilateral trade is expected to

reach the target figure in 2011. Improving trade ties with other countries in the region is especially important considering the

deepening financial crisis in the US and Europe.

PESTLE Analysis



Future risks

Land seizures could lead to civil unrest

Protests against land seizures are put down ruthlessly by the country's security forces, a situation that is leading to

increased resentment towards the government. Furthermore, there is civil unrest in the Central Highlands, which is home to

a large number of ethnic minorities. The Vietnamese government seizes land for development projects, often without

paying adequate compensation. If this continues, it could fan widespread discontent, as the CPV does little to

accommodate political grievances.

Struggle for power between conservatives and reformers

There have also been reports of a struggle for power between conservatives and reformers, following changes in the upper

echelon of the CPV. The party has reportedly become ridden with factionalism, which is not related to any specific ideology

but more about grabbing positions of power. Prime Minister Nguyen Tan Dung is said to be a reformer, and has so far

enjoyed the support of the party; however, the progress of economic reforms could slow down significantly if the balance of

power shifts to the conservatives, and any such development would be detrimental to Vietnamese companies.

PESTLE Analysis



Economic analysis

Overview

The global financial crisis impacted upon the country. The slowdown reduced GDP growth to 6.3% in 2008, down from

8.5% in 2007, and to 5.3% in 2009. The country’s economy recovered in 2010, growing at a rate of 6.8%. Vietnam has

grown rapidly since the CPV turned away from central planning in the late 1980s under its Doi Moi policy. It acceded to the

WTO in 2007 after years of negotiations, signaling the integration of Vietnam into the global economy. The country's state-

owned commercial banks are generally inefficient compared to the smaller joint stock (private and part-private) commercial

banks. Talks aimed at establishing a free trade agreement between the European Union (EU) and the Association of

Southeast Asian Nations (ASEAN) have broken down; however, the EU has expressed its willingness to recommence

negotiations in the future. The frenetic pace of credit expansion is expected to increase the volume of non-performing

assets in the country. Vietnam is dependent on its exports, which accounted for around 64% of its GDP in 2010, and the

country’s economy is likely to suffer in the medium term due to difficult external conditions.

Table 4: Analysis of Vietnam’s economy


▪ Accession to the WTO

▪ Economic reforms

▪ Inefficient state-owned banks

▪ Default on international loans


▪ Free trade agreement with the EU

▪ Tight credit conditions

▪ Downward pressure on the dong

▪ Dependence on exports


Current strengths

Accession to the WTO

Vietnam’s accession to the WTO in 2007 was the result of 12 years of negotiations, and is a politically significant

development, as it indicates the country's entry into the global economy. WTO membership has reduced tariffs and

restrictions on Vietnam’s exports to other members, which has benefited the country. In addition, Vietnam has been better

placed to attract foreign direct investment (FDI). WTO membership boosted the country’s exports, and helped it to become

part of the global economy.

Economic reforms

Economic reforms began in Vietnam with the aim of improving living standards and encouraging foreign investment through

more open economic policies in 1986. The CPV initiated economic reforms under its Doi Moi policy in the late 1980s.

PESTLE Analysis



During the 1990s, enhanced institutional support and steadily improving infrastructure made V ietnam’s growth rate one of

the highest in the region. This growth brought about impressive gains in income and quality of life for the Vietnamese

people. The government decided to permit foreign investors to acquire up to 49% of total equity in unlisted companies in

the country, up from the previous figure of 30%. The move was implemented on June 1, 2009. The government has also

embarked on Project 30, which focuses on simplifying all national and sub-national regulations that dampen business

activity.

Current challenges

Inefficient state-owned banks

State-owned commercial banks dominate the Vietnamese banking sector. Such institutions are generally inefficient

compared to the smaller joint stock (private and part-private) commercial banks, and while the government has injected

funds into the former in an attempt to improve their operations, much-needed restructuring has not been undertaken.

Consequently, the country's banking system lacks credibility, and does not generally follow the Basel norms. Furthermore,

the state-owned commercial banks are not audited by reputed international firms, which create doubts about their future

sustainability, especially considering the fact that the government has pushed these banks to lend aggressively. The

banking system could collapse if non-performing assets increase.

Default on international loans

The Vietnamese government is coming under increasing pressure due to problems relating to debt repayment by large

state-owned enterprises. For example, in December 2010 Vinashin defaulted on the scheduled repayment of a $600m

syndicated loan received from international lenders. The government made a decision not to bail out the company (being

under no legal obligation to do so), and in adopting this approach has sent out a strong message to other state-owned

enterprises. However, the default by Vinashin has severely dented the image of the country in international financial

markets. The lenders might have thought Vinashin's structure meant it had an implicit state guarantee. The default is likely

to have a negative impact on the country, making it difficult for other state-owned enterprises to borrow in international

markets.

Future prospects

Free trade agreement with the EU

Vietnamese foreign policy focuses on improving the country’s economic situation through an increase in investment and

external trade. Therefore, it follows a pragmatic approach that aims to develop friendly relations with all nations. The

Vietnamese government has shown an eagerness to enter into free trade negotiations with a number of countries and

regions, which indicates its commitment to a reform agenda. Despite the suspension of negotiations between the ASEAN

and the EU, the latter has shown a willingness to make deals with individual countries. Vietnam would gain from a free

trade agreement with the EU, which would provide a significant boost to its exporters, as import duties are expected to drop

to zero. The EU’s October 2008 announcement that it will negotiate individual agreements with South Asian countries

including Vietnam bodes well, as it will open up new markets for the country.

PESTLE Analysis



Tight credit conditions

The government is aiming to slow the pace of domestic credit in 2011 to 20%. Domestic credit rose by 28% in 2010 after a

significant increase of 45% in 2009. The frenetic pace of credit expansion is expected to increase the volume of non-

performing assets in the country, particularly because lending in Vietnam is more due to political allegiances rather than

financial viability. The government removed the long-term cap on lending rates in March 2010, which resulted in an

increase in the interest rate from 12% to around 19%, leading to a fall in credit offtake. All of these factors indicate that the

credit situation in Vietnam is likely to remain tight in the medium term.

Future risks

Downward pressure on the dong

Vietnam has witnessed strong demand for the US dollar, which is due to a large trade deficit and high inflation. This has

resulted in considerable downward pressure since late 2009, which pushed the State Bank of Vietnam to devalue the

country's currency on many occasions. The devaluation of the dong against the US dollar amounted to 5% in November

2009, and in February 2010 a devaluation of 3% took place. The dong was devalued by 8.5% in February 2011, when the

official rate fell by 8.5%. Overall, during 2008 to early 2011 the value of the dong fell by more than 18%. Accelerating

inflation in the first half of 2011 has put even more pressure on the currency, which could result in the central bank

devaluing it further still. Devaluation is likely to make exports expensive, and servicing of debt in foreign currencies would

also become more costly. Vietnam’s manufacturing sector could be affected, as it imports intermediate goods that will

become more expensive were devaluation to continue apace. The downward pressure of the dong and the subsequent

devaluations pose a significant risk to the country in the medium term.

Dependence on exports

The global economic slowdown reduced GDP growth to 6.3% in 2008, down from 8.5% in 2007, and to 5.3% in 2009. The

Vietnamese economy recovered in 2010 to register a growth rate of 6.8%. The economies of the US, Japan, and the EU,

which together receive 60% of Vietnam’s exports, are not in great shape. Vietnam is dependent on its exports, which

accounted for around 64% of its GDP in 2010. If the economies of the US, Europe, and Japan do not improve, the country’s

economy is likely to suffer in the medium term.

PESTLE Analysis



Social analysis

Overview

The poverty rate in Vietnam has experienced a sharp fall over the past few years, although it remained at over 20% in

2007. The country managed to keep unemployment below 3% during 2002–07; however, the unemployment rate climbed

to above 4% in 2008. The median age in the country is below 30 years, which indicates that it has a young population.

Consequently, unlike many advanced countries Vietnam will not be faced with the problems of an aging population and

rising social expenditure in the near future. Despite an improvement in Vietnam's relations with the US, the persecution of

individuals with religious beliefs has led the US Department of State to put the country on its list of Countries of Particular

Concern, for violations of religious freedom. In addition, the Japanese government has put its ODA on hold after revelations

of corruption surfaced. This could delay improvements to the Vietnamese transport and sewerage systems.

Table 5: Analysis of Vietnam’s social system


▪ A young society

▪ Low wages in the private sector

▪ Lack of religious freedom

▪ Shortage of doctors in the Central Highlands


▪ Initiative to improve educational quality and raise awareness of sustainable development

▪ Japanese ODA

▪ Rapid growth in slums

▪ High unemployment coupled with high inflation


Current strengths

A young society

In Vietnam, 25.3% of the population is in the 0–14 age group, 69.3% of the population belongs to the 15–64 age group, and

just 5.5% of the population is in the 65+ age group. According to Central Intelligence Agency World Factbook estimates,

Vietnam had a median age of 27.8 years in 2011, which means that half of the population is below this age. While many

developed nations are faced with the problem of an aging population and rising social expenditure, Vietnam’s demographic

structure works in its favor, as there are regular additions to its labor force.

Low wages in the private sector

Vietnamese workers have not benefited by taking up work in industrializing urban areas. This is because the wages offered

by private companies in Vietnam are far lower than in the public sector. A wave of labor strikes before 2005 led to the

government attempting to formalize labor codes and make them more efficient in terms of arbitration and implementation.

The government was also forced to raise the minimum wage by nearly 40% due to a surge in industrial action during 2005.

PESTLE Analysis



However, wages in private factories continue to be below those in state-owned companies. For instance, in a Taiwan-

owned factory that witnessed 20,000 workers strike in April 2008, the employees – who produce Nike-branded apparel –

are paid an average monthly wage of $89. In comparison, the minimum wage at state-owned enterprises is 35% higher,

and 134% higher for newly skilled employees. Workers at another Taiwan-owned footwear factory near Ho Chi Minh City

went on strike in April 2010 to demand better pay and benefits. Furthermore, workers at state-owned enterprises get a

share in the company's profits through a bonus system and welfare funds.

The workers at state-owned cement plants earn an average of $200–250 per month, and government paper mills workers

earn $120–180, both figures considerably higher than the amount paid at the strike-hit Taiwan-owned factory. Low wages

are coupled with the fact that many workers at foreign factories are required to work up to 1,000 hours overtime a year,

often in poor if not abysmal working conditions. Although many Vietnamese individuals have been lifted from poverty after

gaining employment in factories owned by external investors, they continue to earn less than those working for state-owned

enterprises, which is increasing resentment toward foreign companies.

Current challenges

Lack of religious freedom

The government continues to deny Vietnamese citizens the right to freely practice their religion. Catholics from Hanoi's Thai

Ha parish in Vietnam protested in order to demand the return of property expropriated by communists in the 1960s. During

this demonstration, the Vietnamese police are alleged to have assaulted activists who were participating in peaceful prayer

vigils. Such events have been a feature of the Vietnamese landscape for many years, with demands for the return of

confiscated property often quickly followed by state repression.

Catholics are the not the only group facing oppression in the country. According to the US Commission on International

Religious Freedom report released in August 2008, the government has been accused of a range of abuses, including the

banning of indigenous religions such as Hoa Hao and Cao Dai and the continual harassment of followers of the Unified

Buddhist Church of Vietnam. Moreover, local governments in many regions of the country continue to bar students from

religious families from attending school, and there are still cases where believers are forced to renounce their faith. The

lack of freedom to practice one’s religion and the persecution of citizens with religious beliefs continues to be a major

problem in the country.

Shortage of doctors in the Central Highlands

The rural areas in Vietnam are not able to attract doctors in sufficient numbers, which is leading to a crippling shortage of

medical staff in village healthcare centers. The health officials from the Central Highland provinces of Dak Nong, Dak Lak,

Lam Dong, Gia Lai, and Kon Tum have maintained that it is very difficult to attract doctors to rural hospitals. For example, in

the Dak Nong province the doctor/patient ratio stood at 4.7 doctors for 10,000 individuals in 2007, which is very low.

Furthermore, only 30% of villages in this province have doctors; health officials have pointed out that there is a shortage of

doctors at all levels. Although the government sanctioned the spending of $63.5m on 19 health projects in the Central

Highlands provinces in 2007, the situation remains grim, as doctors prefer to work in the cities.

PESTLE Analysis



Future prospects

Initiative to improve educational quality and raise awareness of sustainable development

The United Nations Educational, Scientific, and Cultural Organization's (UNESCO's) Asia Pacific education office praised

Vietnam’s efforts in implementing the United Nations Decade of Education for Sustainable Development 2005–14

framework in July 2007. UNESCO stated that Vietnam was one of the first countries to establish a national action

committee on the issue of sustainable development. A National Action Program has been initiated to improve the quality of

education in the country, and also seeks to raise student awareness of sustainable development issues. Vietnam’s efforts

to improve educational quality and to raise awareness of sustainable development are important first steps towards the

country’s long-term progress.

Japanese ODA

In January 2011 the Japan International Cooperation Agency (JICA) signed an agreement with the Vietnamese government

to provide a loan of JPY58.18bn ($740m) for three projects. In FY2010, JICA signed loan agreements for a total of

JPY18.38bn ($229m) for two projects in May 2010, and a loan agreement in June 2010 for up to a total of JPY10bn

($127m) for one project, bringing the total for the year up to JPY86.5bn ($1.1bn) for six projects. Since resuming aid to

Vietnam in 1981, Japan has taken the lead in providing ODA to fund Vietnam’s crucial infrastructure projects. Rising ODA

from Japan is crucial to improve the social landscape in the country.

Future risks

Rapid growth in slums

Vietnam’s rapid growth has resulted in increasing urbanization. However, there have been no significant investments in the

country's infrastructure. A large proportion of the urban population lives in slums, with inadequate water and poor sanitary

conditions. Furthermore, most of these slums do not have paved roads, which makes transportation extremely arduous

during the rainy seasons. Around 300,000 people lived in slums and squatter settlements in 2009 in Ho Chi Minh City,

where neither the government nor private developers are able to provide the housing needed for the estimated 50,000 new

migrants that move there every year. Consequently, most of these new migrants end up in the city's rapidly growing slum

settlements. The rapid growth of slums is a serious cause for concern.

High unemployment coupled with high inflation

Vietnam has consistently maintained low unemployment levels in the country. The global economic crisis affected the

country’s GDP, and increased unemployment from 4.7% in 2007 to 6.1% in 2009, before the rate declined slightly to 5.1%

in 2010. The country faced higher inflation of 9.4% in 2010, and this rate is likely to increase to 13.8% in 2011, according to

Datamonitor forecasts. High inflation along with high unemployment is likely to cause problems in the medium term.

PESTLE Analysis



Technological analysis

Overview

Vietnam is slowly moving into high-tech production, as manufacturing costs have been increasing far more rapidly in

Southeast China. The government issued a decree in July 2010 regulating investment and co-operation with foreign

partners in the area of science and technology. The country has introduced a number of initiatives designed to foster e-

governance in the country. However, its IPR implementation remains poor, and the IIPA reports that the country suffers

from high rates of piracy; Indeed, the IIPA has put Vietnam on its watch list for allowing violations that cause huge losses to

companies. Vietnam continues to face challenges in terms of access to computers, which are available in less than 40% of

provinces and small cities.

Table 6: Analysis of Vietnam’s technology landscape


▪ Decree to regulate science and technology deals

▪ High-tech production facilities

▪ Low IT usage


▪ New center in space technology

▪ Agreement with Korean Invention Promotion Association

▪ High piracy rates


Current strengths

Decree to regulate science and technology deals

The Vietnamese government issued Decree No 80/2010/ND-CP on July 14, 2010, which regulates investment and co-

operation with foreign partners in the area of science and technology. The decree covers co-operation in science and

technology organizations, research, and training. It requires agreements in this space to be either written or else a

memorandum of understanding, the execution of which must be reported to the relevant state authority within 15 days from

the date of execution. The agreements must be approved in writing by the provincial People's Committee in which the

headquarters of the organization are located, and must also meet environmental requirements. This decree is expected to

facilitate investment in science and technology in the country.

High-tech production facilities

Manufacturers are choosing North Vietnam to manufacture products meant for the world market and, in particular, for

Southeast China. This is because production costs are predicted to increase far more rapidly in the latter country than in

the former over the next 10–20 years. The first signs of this shift were seen in November 2006, when Intel Corporation

declared that it would increase its investment from the previous figure of $300m to $1bn in an assembly-and-test facility

PESTLE Analysis



outside Ho Chi Minh City. The new facility is expected to be the largest single factory in the Intel network. Production began

in 2009, and the facility could employ as many as 4,000 highly skilled workers.

Current challenges

Low IT usage

According to the Ministry of Information and Communication, around 68% of employees in central government agencies

had access to a computer in November 2008. Meanwhile, in provinces and small cities computer access stands at around

40%. In November 2008, six provinces out of 64 did not have a website, those being Quang Ninh, Dak Nong, Lai Chau,

Yen Bai, Hoa Binh, and Dien Bien. Two Vietnamese government ministries are also without a website. The government is

encouraging IT usage as a key part of its administrative reforms to connect the government with the people; however, it has

to do a lot more to increase the use of computers.

Future prospects

New center in space technology

A new technology research center will be built in Hanoi, with a projected investment of $350m sourced from Japan’s ODA.

The center will aim to effectively implement the country’s space technology research and application strategy by 2020. It

will be located at the Hoa Lac Hi-Tech Park, which is expected to include a satellite manufacturing plant, an integrating and

testing center, a magnetic field testing area, a satellite control center, and an observatory model. Work on the new center is

expected to begin in 2010 and to be completed by 2017.

Agreement with the Korean Invention Promotion Association

The Ho Chi Minh City Department of Science and Technology signed an agreement with the Korean Invention Promotion

Association on August 10, 2010 to boost co-operation in the field of science and technology. The agreement is expected to

help Vietnam access updated technologies, as well as improving product quality and productivity. The association will also

support Vietnam in terms of the training of human resources technology transfer in high-tech areas. This agreement is

expected to improve the innovation scenario in Vietnam.

Future risks

High piracy rates

Vietnam has high rates of piracy, which could deter investment in R&D intensive areas. The IIPA has put Vietnam on its

watch list for allowing IPR violations that cause huge losses to companies. According to IIPA estimates, business software

losses totaled $211.8m in 2009, up from $154m in 2008. The Business Software Alliance and International Data

Corporation Global Software Piracy Study covers the pirated software that runs on personal computers including desktops,

laptops, and ultra-portables. According to the study, countries with high levels of PC sales from non-brand name vendors

have high rates of piracy. The study concludes that 85% of the packaged software in the country is pirated, which puts the

country among the global top 10. High levels of piracy could deter investment in areas which involve high levels of R&D.

PESTLE Analysis



Legal analysis

Overview

The legal landscape in the country has been improving since its bid to become a member of the WTO. According to the

World Bank's Doing Business indicators, it is easy to register property in the country compared to elsewhere in the region.

Vietnam is a centrally planned socialist economy with state-owned enterprises in monopoly positions, and needs to do

more in terms of easing restrictions to promote competition. The country’s judiciary is under the control of the CPV, and the

party exercises sufficient power to influence the outcome of cases involving perceived threats to the state or to the party’s

dominant position. The government has created the National Steering Committee for Corruption Prevention and Control,

headed by the prime minister, in an attempt to tackle corruption in the country.

Table 7: Analysis of Vietnam’s legal landscape


▪ Favorable foreign investment scenario

▪ Monopolies of state-owned companies

▪ Lack of independent judiciary


▪ Lifting of capital account restrictions

▪ Rising power of trade unions

▪ High level of corruption


Current strengths

Favorable foreign investment scenario

Vietnam maintains a policy of encouraging foreign investment. A crucial element in its long-term development strategy has

been its continued ability to attract and utilize relatively large amounts of overseas capital, in the form of both FDI and ODA.

For 2006–10, the government of Vietnam established targets in its Socio-Economic Development Plan for FDI at $17.5–

19.5bn in disbursements from existing and newly licensed foreign investments, and for approximately $10bn in ODA

disbursed by foreign donors, amounting to a total of $28–32bn from foreign sources. These levels of FDI and ODA are

required to support the government’s GDP growth target of 7.5–8% per year.

Current challenges

Monopolies of state-owned companies

Vietnam is still emerging from being a centrally planned socialist economy with state-owned enterprises holding monopoly

positions. In the electricity, aviation, and telecommunications industries government-run companies have a complete

monopoly, with market shares of at least 80%. The cement, sugar, banking, and petroleum sectors are all heavily

PESTLE Analysis



regulated, and as a result state-owned entities have market shares of 10–40%. In all of the sectors where government-run

organizations enjoy a monopoly, prices tend to be exorbitant and the companies tend to be inefficient and uncompetitive.

The government must initiate measures to reduce regulations in some of these sectors, and actively support privatization in

order to foster competition and efficiency.

Lack of independent judiciary

Vietnam lacks an independent judiciary, in part because the CPV selects judges and vets them for political reliability.

Furthermore, the party seeks to influence the outcome of cases involving perceived threats to the state or to the party’s

dominant position. In an effort to increase judicial independence, the government transferred the authority of local courts

from the Ministry of Justice to the Supreme People’s Court in September 2002. However, there is little evidence to suggest

that this move has improved the autonomy of judges. Vietnam’s judiciary is also hampered by a shortage of lawyers and

undeveloped trial procedures. The CPV’s influence over the judiciary is a major challenge to the country.

Future prospects

Lifting of capital account restrictions

Vietnam’s membership of the WTO, which took effect in January 2007, should ensure that the government will continue

with its policy of liberalization. Despite its continued support for protectionist policies, the government is expected to ease

capital account restrictions. However, it is unlikely that Vietnam will introduce full capital account liberalization in the near

term. The removal of tariff and non-tariff barriers is expected to be a long and drawn-out process, especially considering the

imposition of monitoring measures on garment exports by the US and the EU’s decision to impose anti-dumping measures

on leather shoes. Vietnam is likely to continue with its policies of liberalization, albeit rather slowly.

Future risks

Rising power of trade unions

Trade unions are a powerful political force in the country. Vietnam is attracting increased foreign investment, and so the

protection of workers’ rights is considered to be more important than it was previously. In April 2010 workers went on strike

at a Taiwan-owned footwear factory near Ho Chi Minh City to demand better pay and benefits. In another incident in April

2008 more than 20,000 Vietnamese workers went on strike, demanding a 20% increase to their $89 monthly salaries at a

Taiwanese-owned factory that makes shoes for US apparel giant Nike. The scale of the protests is potentially damaging to

the Vietnamese government’s efforts to emerge as a favorable destination for FDI. In 2008 there were over 700 strikes,

compared with 541 in 2007. The number of strikes dropped by 70% in 2009 to 216; however, high inflation is creating

tensions, as workers are asking for higher wages in order to keep pace with the increased cost of living. Most of the strikes

take place at foreign-owned enterprises, and involve workers protesting against poor working conditions and meager

wages. The rising power of the labor unions will dent the credibility of the country as a viable destination for FDI.

High level of corruption

Vietnam has dangerously high levels of corruption. The National Assembly approved the Anti-Corruption Law in November

2005, which came into effect in June 2006. To tackle corruption at the highest levels, the National Steering Committee for

Corruption Prevention and Control, headed by the prime minister, was created. However, the committee lacks full

PESTLE Analysis



independence, which has raised questions about the impartiality of investigations. The committee will be placed in a very

tight spot with regards to cases involving CPV politicians. Transparency International’s 2010 Corruption Perceptions Index

ranked Vietnam 116th out of 178 nations – a marginal improvement from the 121st position the country recorded in 2008 –

with a score of 2.7 (0 equates to highly corrupt, and 10 equates to free from corruption). Corruption is perceived as being

widespread in the country. The country is well behind other nations in the region, including Malaysia (56th), China (joint

78th), Thailand (joint 78th), and India (87th). Vietnam has to take measures to alleviate corruption in the country, as it can

act as an impediment to potential foreign investors.

PESTLE Analysis



Environmental analysis

Overview

A large part of Vietnam’s land is covered with forest. The country lacks integration at the planning and programmatic levels,

and suffers from a lack of environmental awareness. The World Bank has approved a loan to fund a community-based

natural disasters risk management program in Central Vietnam during 2011–15. Rapid growth in industrial production has

led to increasing pollution, especially as most of the production units have poor environmental records. The country has

initiated many projects to increase forest cover, including nationwide afforestation programs, but the government has

struggled to achieve its targets.

Table 8: Analysis of Vietnam’s environmental landscape


▪ Hydropower project to reduce emissions

▪ Wastewater treatment project

▪ Lack of environmental integration and awareness


▪ Natural disaster risk management

▪ Clean water initiative

▪ Rising deforestation


Current strengths

Hydropower project to reduce emissions

In November 2008, the Japan Bank for International Cooperation (JBIC) signed an agreement to sanction a loan totaling up

to JPY11bn with Vietracimex Lao Cai Electric Joint Stock Company, a government-guaranteed Vietnamese corporation.

The loan was co-financed by Sumitomo Mitsui Banking Corporation, with JBIC providing assurance for its portion. This is

the first loan that JBIC has extended to Vietnam. It will finance the construction and operation of a 60MW hydropower

station in the Lao Cai province of North Vietnam, a Clean Development Mechanism (CDM) project from which Japanese

companies will acquire Certified Emission Reductions. The loan will support the promotion of CDM projects in Vietnam,

which will not only help Japan to achieve its Kyoto Protocol targets, but will help curb Vietnam's growing greenhouse gas

emission levels.

Wastewater treatment project

The World Bank has decided to fund an urban water supply and wastewater treatment project worth $200m for the 11

provinces that were approved by the prime minister. Of the total, $150m will be sourced from the International Development

Association, with the remainder coming from the International Bank for Restructure and Development, under the auspices

PESTLE Analysis



of the World Bank. The provinces of Binh Duong, Nghe An, Thanh Hoa, Quang Nam, Ninh Binh, Lam Dong, Quang Tri,

Dak Lak, Kien Giang, Quang Ninh, and Binh Phuoc are all expected to benefit from the project, which will be implemented

during 2010–13, and is expected to improve the urban water supply and increase the treatment of wastewater.

Current challenges

Lack of environmental integration and awareness

Vietnam lacks environmental integration at the planning and programmatic levels, a fact that can clearly be seen in both the

public investment planning process and in regional plans for land and resource use. Furthermore, a lack of awareness of

the environmental damage caused by sustained economic growth is cause for concern. For example, authorities in Hai

Duong Province found that the Chinese-owned East Asia Aluminum discharged untreated waste into local waterways,

destroying paddy fields in early 2010. Sewage samples at the factory showed organic compounds nearly four times higher

than the allowed levels, while the amount of oxygen available for aquatic and plant life in the local waterway was far too

low. There are no means available for stakeholders to make government agencies accountable, which is a major challenge

for the country to address.

Future prospects

Natural disaster risk management

The World Bank has approved a loan in July 2011 to fund a community-based natural disasters risk management program

in Central Vietnam during 2011–15. Vietnam has been subjected to various natural disasters such as f loods, landslides,

droughts, tropical storms, and hail on a regular basis. According to the Ministry of Natural Resources and Environment,

natural disasters will claim 500 Vietnamese lives and caused a loss of around VND14.5tn ($695m) during 2010–15. The

loan is expected to improve the government’s response to disasters in the country.

Clean water initiative

Saigon Water Corporation, the key supplier of tap water in Vietnam’s Ho Chi Minh City, aims to provide clean water to

nearly 92% of the city’s population and to increase daily capacity from the current level of 1.3 million cubic meters to 2.39

million cubic meters by 2015, and to reduce the rate of water leakage to 30–32% by 2014, down from 40% in 2009. By

2009, 1.03 million households in Ho Chi Minh City had access to clean water, an increase of 349,717 compared to 2005.

Access to drinking water is expected to rapidly increase as a result of this initiative.

Future risks

Rising deforestation

A large percentage of the country is covered with forest. In 2005, Vietnam’s natural forests were estimated at 9.5 million

hectares, while planted forests are believed to extend to over 2.9 million hectares; altogether, forest covers 38% of the

land. The country has initiated many projects to increase the forest cover, including a nationwide afforestation program

costing VND31.6tn ($1.56bn) that was approved in 1997. The project, however, failed to meet its target of planting 5 million

hectares of forests by 2010, with afforestation being achieved in just 2.45 million of hectares by 2010, or 49%. Vietnam is

estimated to lose around 200,000 hectares of forest every year due to factors such as nomadism (which will account for

PESTLE Analysis



60,000 hectares), fires (50,000 hectares), and logging activities (90,000 hectares). The government has to do a lot more to

increase the forest cover in the country.

Political Landscape



POLITICAL LANDSCAPE

Summary

Vietnam remains a one-party state, dominated by the Communist Party of Vietnam (CPV). In recent years, the party has

moved towards a modernizing agenda, particularly with regards to the economy. However, international partners and

human rights groups remain critical of abuses of minority rights and religious freedoms, as well as the continuation of the

system of one-party rule. The CPV is headed by a triumvirate consisting of a president, a prime minister, and a general

secretary. The authorities pay lip service to international pressure on democracy and human rights, and appear to foresee

a more influential role for the legislature in the process of governance. However, fundamental political reform seems some

way off.

The significant political events in Vietnam are shown in Figure 2.

Figure 2: Vietnam – political events timeline

• Ho Chi Minh founded

the Indochinese

Communist Party (ICP)

in 1930.

• In response to

Japanese invasion in

1941, ICP formed the

Viet Minh.

• The Viet Minh seized

power and announced

Vietnam’s

independence in 1945.

• Viet Minh forces

attacked an isolated

French military outpost

in the town of Dien Bien

in 1954.

• In the same year, the

French government

agreed to peace talks in

Geneva. At the Geneva

conference, Vietnam

was split into North and

South at the 17th

Parallel.

• The communist

insurgency began in

South Vietnam in 1957.

•American aid to Diem

was increased in 1960.

•Viet Cong, the

communist guerrillas

operating in South

Vietnam, defeated the

South Vietnamese Army

and overthrew President

Diem in 1963.

• A US destroyer was

attacked triggering

bombing raids on North

Vietnam in 1964.

• The US troops reached

500, 000 in 1967.

• A combined assault by

Viet Cong and the North

Vietnamese army on US

positions began in 1968.

• Ho Chinh Minh died in

1969 and President

Nixon started

withdrawing troops.

• A ceasef ire agreement

was signed in Paris

and the US troops

were pulled out by

March 1973.

• North Vietnamese

troops invaded South

Vietnam and took

control of the whole

country in 1975.

• Socialist Republic of

Vietnam was

proclaimed in 1976.

• Vietnam invaded

Cambodia and ousted

the Khmer Rouge

regime of Pol Pot in

1979.

• Vietnamese troops

withdrew f rom

Cambodia in 1989.

• A new constitution was

adopted and certain

economic f reedoms

were given in 1992.

• US lif ted its 30-year

trade embargo in 1994.

• Vietnam became a full

member of the

Association of

Southeast Asian

Nations in 1995.

• The US and Vietnam

normalized their trade

relations in 2001.

• In the same year, the

Communist Party

chose Nong Duc Manh

as its new leader.

• In 2007, President

Nguyen Minh Triet

made the f irst ever visit

to the US by a

Vietnamese head of

state.

• Prime Minister Nguyen

Tan Dung was

reappointed in 2007 and

he promised to usher in

economic reforms.

• Vietnam took up a two-

year, non-permanent

seat on the UN Security

Council in January

2008.

• China and Vietnam

resolved the border

dispute, in December

2008, 30 years af ter

1979 war.

1930−54 1955−68 1969−79 1980− 2001 2002 onwards


Political Landscape



Structure and policies

Key political figures

The key political figures in Vietnam include:

President Truong Tan Sang

Prime Minister Nguyen Tan Dung.

Figure 3: Vietnam – key political figures

Truong Tan Sang became the president of the country after gaining the parliamentary approval

in July 2011. He is expected to support market-oriented policies. The president is a ceremonial

head in Vietnam and the prime minister oversees the daily working of the government.

Nguyen Tan Dung became the prime minister on the approval of the national assembly in

2006. He was a governor of the state bank of Vietnam between 1998–99. He joined the

Communist Party of Vietnam on June 10, 1967 and then joined the army as a full-fledged

fighter. He was subsequently elected a member of the Party’s Politburo at the eighth, ninth and

tenth national party congresses.


Structure of government

Vietnam is a one-party communist state and is currently led by a troika consisting of General Secretary Nguyen Phu Trong,

President Truong Tan Sang, and Prime Minister Nguyen Tan Dung. In early 1975, North Vietnamese military forces began

a major offensive in the south of the country, inflicting great damage on the region's forces. The communists took Saigon

on April 30, 1975 and announced that they would reunify the country. The Democratic Republic of Vietnam (the north)

absorbed the Republic of Vietnam (the south) to form the Socialist Republic of Vietnam on July 2, 1976. The CPV has been

in charge ever since unification. The national policy of the country is decided by the orders of the party’s leadership, which

the executive (Central Committee) and the legislature (National Assembly) are required to follow. At provincial and city

levels, people’s committees have considerable influence as their approval is a prerequisite for all development projects and

expenditure within their jurisdiction. The party secretariat comprises 14 Politburo and 160 Central Committee members,

and deals with day-to-day policy. Key issues are put forward for the consideration of the Central Committee. Major policies

have to be ratified by the party congress, which meets every five years.

Political Landscape



Key political parties/figures

The Secretariat of the CPV formulates the major policies, and is made up of 14 Politburo and 160 Central Committee

members. The Central Committee considers key policy issues, and five-yearly party congresses ratify major policy

changes. The 10th party congress, held in April 2006, led to significant changes in the party leadership, although Nong Duc

Manh retained the key position of general secretary. The National Assembly’s June 2006 session subsequently confirmed a

new government leadership, including a new president, prime minister, and key cabinet ministers. The new government

includes some relatively young ministers, and is considered to have been the first step towards installing a new generation

of leaders.

Vietnam’s human rights record is gradually improving. Government monitoring and control of all facets of the political,

social, economic, and religious lives of the people is reducing in some areas, but is still intrusive and at times erratic.

Satellite television and the Internet are now available, although the latter is extensively monitored. Religious and media

freedoms are closely controlled, and political pluralism is yet to be accepted. There is strong asymmetry between the

Vietnamese markets that are being opened up and the country's centrally controlled political system. Vietnam remains a

communist one-party state, ruled by President Truong Tan Sang, Prime Minister Nguyen Tan Dung, General Secretary

Nguyen Phu Trong, and a close circle of others within the CPV. The CPV tolerates little criticism and restricts the basic civil

and political freedoms of its citizens, meaning that while the country's economic transition has proceeded at a rapid pace,

the political realm lags far behind in terms of development.

Key policies

Economic policies



During the 1990s, enhanced institutional support and steadily improving infrastructure made Vietnam’s growth rate one of

the highest in the region. This growth brought about impressive gains in terms of income and quality of life of the

Vietnamese people. The government decided to permit foreign investors to acquire up to 49% of total equity in unlisted

companies in the country, up from the previous figure of 30%. The move was implemented from June 1, 2009. The

government has embarked on Project 30, which focuses on simplifying all national and sub-national regulations that

dampen business activity.

The government struggles to control inflationary pressures as it continues to aim for fast growth. The interest rate subsidy

scheme for medium- and long-term loans was extended until the end of 2010. However, it now provides a subsidy of only

two percentage points, compared to the subsidy that was equivalent to four percentage points in 2009. This subsidy was

also applied to short-term loans. This measure has provided firms with working capital and has thus boosted economic

activity; however, this has resulted in rapid growth in domestic credit, which has increased inflationary pressures.

Poor domestic investment by the government and inefficient state-owned enterprises remain a concern, however. The

Vietnamese government has initiated measures to reform state-owned enterprises in order to improve their financial

situation, but the pace at which these reforms are taking place is slow. A key problem with large and inefficient state-owned

enterprises is that they have been lent large amounts of money from state-owned banks. Consequently, the banks have

accumulated a large percentage of non-performing loans in their balance sheets.

Political Landscape



Social

The number of people living below the poverty line came down remarkably during 1993–2006. This was achieved due to

the Doi Moi process, which has included land reform, price liberalization, and agricultural de-collectivization. Vietnam's

record on poverty reduction is excellent: the proportion of people living in poverty (on less than $1 per day) fell from 58% in

1993 to 15% in 2007. A social security plan provides old age, disability, and survivorship benefits, as well as work-based

injury and medical insurance coverage, which is compulsory for public sector employees and employees of companies with

more than 10 employees. Pensions are funded by 5% of employee wages, by 15% of employer payroll, and by government

contributions. Women in Vietnam get maternity benefits with full wages for 120 days. The 10th CPV congress in April 2006

approved the five-year Socio-Economic Development Plan 2006–10, supporting Vietnam’s intention to become a middle

income country by 2010.

Foreign

Vietnam has reached out to the world since the early 1990s after decades of isolation. The country joined the Association

of Southeast Asian Nations (ASEAN) in 1995, which was a historic moment for the nation. In 2004, the fifth Asia-Europe

Meeting of world leaders was held in Hanoi. Vietnam hosted the Asia Pacific Economic Cooperation summit in November

2006, and joined the World Trade Organization in January 2007. The country became a member of the United Nations

Security Council in January 2008. Vietnam's relations with its largest neighbor China are intricate. The country was

subjected to 1,000 years of Chinese rule in what is now North Vietnam, ending in the 10th century. Chinese rule had a

deep impact on Vietnamese culture, and relations between the two countries remain unpredictable. Despite being a

communist state, Vietnam is wary of China. There have been disagreements over the sovereignty of the Spratley Islands in

the South China Sea, and disputes regarding the border between the two countries have led to occasional demonstrations

such as those in Hanoi and Ho Chi Minh City at the end of 2007. Vietnam has close relations with ASEAN member

countries such as Laos and Cambodia.

Performance

Governance indicators

The World Bank report on governance uses voice and accountability, political stability and absence of violence,

government effectiveness, regulatory quality, rule of law, and control of corruption as indicators for 212 countries and

territories over 1996–2009. The study was carried out by Daniel Kaufmann and Massimo Mastruzzi of the World Bank

Institute, and Aart Kraay of the World Bank Development Economics Research Group. For any country, a percentile rank of

0 corresponds to the lowest possible score and a percentile rank of 100 corresponds to the highest possible score.

In 2009, Vietnam was given a percentile rank of 7.6 on voice and accountability. This parameter measures the extent to

which a country's citizens are able to participate in selecting their government, as well as freedom of expression, freedom

of association, and freedom of the media. In comparative terms, Vietnam scored much lower than the Philippines, which

received a percentile rank of 45.5. The CPV does not allow any form of dissent in the country, and the media is firmly

controlled by the state.

Vietnam was assigned a percentile rank of 51.4 in terms of political stability in 2009, which is higher than the Philippines’s

10.8. The CPV has a firm grip on the country, and there seems to be no threat to its power in the near term.

Political Landscape



In terms of government effectiveness, Vietnam received a percentile rank of 46.2 in 2009. Government effectiveness

measures the quality of public and civil services, the degree of governmental independence from political pressures, the

quality of policy formulation and implementation, and the credibility of the government's commitment to such policies. The

Philippines is well ahead in terms of government effectiveness, as it registered a percentile rank of 50.0 in 2009.

Vietnam’s percentile ranking in terms of regulatory quality was 31.0 in 2009. Regulatory quality measures the ability of the

government to formulate and implement sound policies and the existence of regulations that permit and promote private

sector development. Vietnam’s performance on this parameter is lower than that of the Philippines, which had a percentile

ranking of 52.4 in 2009.

Vietnam received a percentile rank of 41.5 in the rule of law index. Rule of law measures the extent to which agents have

confidence in and abide by the rules of society – and in particular the quality of contract enforcement, the police, and the

courts – as well as the likelihood of crime and violence. Vietnam is ahead of the Philippines in terms of rule of law, with the

latter achieving a percentile rank of 35.4 in 2009.

Vietnam’s percentile ranking in terms of control of corruption was 36.7 in 2009, having increased from 32.5 in 2003. The

country has been troubled by widespread corruption, and enforcement of anti-corruption laws has been ineffective and

inconsistent. No institution of the country, including the judiciary, the executive, and the legislature, is perceived to be

beyond the reach of corruption. The Philippines’s percentile ranking in terms of control of corruption was 27.1 in the same

year, lower than Vietnam's.

Outlook

The CPV continues to reject demands for political reform, and the citizens of the country have no say in the formation of the

government. Vietnam's media is not free, and the people do not have freedom of association or expression. That is why the

country had a percentile rank of just 7.6 in the voice and accountability parameter of the World Bank’s 2009 governance

indicators. For instance, two reporters were arrested in May 2008 and charged with abusing their position and power while

discharging their public duty, following their coverage of a major corruption scandal. This has led to renewed criticism of

Vietnam, and has confirmed the belief that the government does not tolerate any dissent.

Vietnam has been strengthening its ties with the US in terms of trade and investment. The US granted Vietnam permanent

normal trade relations status in late December 2006. Despite high-level exchanges between the two governments, relations

continue to be tenuous due to human rights violations and the persecution of citizens with religious beliefs. The US

Department of State put Vietnam on its list of Countries of Particular Concern for violations of religious freedom in 2010.

Vietnam was previously placed on the list in 2004, which embarrassed Hanoi and put pressure on it to release many

religious prisoners. The country was removed from the list in 2006. The Vietnamese government has a track record of

stifling opposition, and the courts regularly punish people for dissent. The improvement in the country's relations with the

US could stall due the differences between the US and Vietnam on the issues of human rights and suppression of religious

freedom.

Economic Landscape



ECONOMIC LANDSCAPE

Summary

The Vietnamese economy witnessed strong growth throughout the 1990s, as liberal economic reforms instituted from the

mid-1980s onwards bore fruit. International trade and investment flows received a substantial boost from the lifting of the

US trade embargo in 1994. The economy was hit by the regional financial crisis in 1997–98, although the comparatively

underdeveloped financial sector offered a degree of insulation from the full impact of these events. Gross domestic product

(GDP) growth between 2005 and 2007 was the highest it had been since the Asian Financial Crisis of the late 1990s,

peaking at 8.5% in 2007. A rise in exports and petroleum price hikes were largely responsible for this robust performance.

Developments in 2006 included the successful completion of a bilateral trade agreement with the US, followed by the

gaining of World Trade Organization (WTO) membership.

The global economic slowdown reduced the country's GDP growth rate to 6.3% in 2008 and to 5.3% in 2009. Vietnam

initiated a stimulus package worth $8bn in 2009, with $5.2bn to be used for infrastructure and development projects, $1.6bn

for tax breaks for enterprises and individuals, and $400m for social welfare. In early 2009, the government announced that

it would inject $1bn to subsidize bank loan interest for businesses. The stimulus package fostered growth in the midst of the

worldwide financial crisis, and the country grew at a healthy 6.8% in 2010.

Evolution

1950–90

Significant economic events during this period included:

Following reunification in 1975, Vietnam’s economy was overwhelmed with problems such as imbalances in

supply and demand, inefficiencies in distribution and circulation, soaring inflation rates, enormous difficulties in

production, and rising debt problems.

At the Communist Party of Vietnam's (CPV's) second plenum in April 1987, measures were introduced designed

to give greater scope to the private sector, reduce the budget deficit, and boost the output of agricultural and

consumer goods in order to raise market supplies and exports.

1991–2010

The Vietnamese economy witnessed strong growth throughout the 1990s, as liberal economic reforms instituted from the

mid-1980s onwards bore fruit. International trade and investment flows received a substantial boost from the lifting of the

US trade embargo in 1994. The economy was hit by the regional financial crisis in 1997–98, although the comparatively

underdeveloped financial sector offered a degree of insulation from the full impact of these events.

In recent years, the economy has continued to perform well. The authorities have sped up economic reforms since

agreeing a comprehensive timetable for liberalization with the International Monetary Fund and the World Bank in 2001. In

addition, the goal of WTO accession has given impetus to economic and structural reforms over the past few years.

Reductions in trade and investment barriers, improvements to macroeconomic policymaking, and restructuring in the

Economic Landscape



financial sector have all proceeded well. However, less progress has been made with regards to the reform of the bloated

state-owned enterprise sector, and the privatization process is at an embryonic stage.

In addition, the poverty rate, although declining, still remains high, and the prospect of rising unemployment cannot be ruled

out over the short term as the population continues to grow (at a rate of just below 1% in 2008) and the inefficient state-run

sector retrenches workers. However, the recent WTO accession could potentially encourage more foreign companies to

invest in Vietnam, thus creating new jobs and helping to increase the income of its population beyond the current average

of around $620 per head per year.

At over 8.5%, GDP growth in 2007 was the highest since the Asian Financial Crisis of the late 1990s. A rise in exports and

petroleum price hikes were largely responsible for this robust performance. Developments in 2006 included the successful

completion of a bilateral trade agreement with the US, followed by the gaining of WTO membership. The authorities have

updated intellectual property right regulations to comply with the Trade Related Intellectual Property Rights agreement,

adding to Vietnam’s potential to attract further investment. New laws on investments and enterprises were brought into

effect during 2006 in an attempt to synchronize the investment climate for both domestic and foreign investors. The

country's economy grew by 8.2% in the same year, and by 8.5% in 2007. The global economic slowdown reduced the GDP

growth rate to 6.3% in 2008 and to 5.3% in 2009. Inflation hit a high of 23% in 2008, which was due both to shortsighted

domestic macroeconomic policies and global economic turbulence. Inflation came down to 6.8% in 2009, before climbing to

9.4% in 2010. Inefficient state-owned enterprises and poor domestic investment by the government remain a concern.

Economic Landscape



Figure 4: Vietnam – historical GDP growth, 1991–2010

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Financial authorities and regulators

President Ho Chi Minh gave his assent to the establishment of the Vietnam National Bank on the basis of the new

economic and financial policy set out in the second congress of the Vietnam Workers’ Party in February 1951. The bank

was to implement the party's directions and policies during the period of modernization and industrialization. During 1975–

85, the national bank of the Republic of Vietnam (in the south) was nationalized and unified with the State Bank of Vietnam,

and new banknotes of the Socialist Republic of Vietnam replaced the old notes in both the north and the south in 1978. The

State Bank of Vietnam did not adopt market-oriented policies until late in the 1980s. It monitors and supervises banking

activities, controls credit activities, and handles all monetary and banking violations in accordance with law. Moreover, the

bank formulates national monetary plans for the government to submit to the National Assembly for approval.

The State Securities Commission (SSC) of Vietnam was incorporated in 1996. The duties and responsibilities of the SSC

include the following:

developing the capital markets in Vietnam

Economic Landscape



issuing licenses to participating companies

drafting and implementing rules and regulations.

The SSC receives assistance from the International Finance Corporation for the creation of regulations in the country.

The Ho Chi Minh City Securities Trading Center (HoSTC) was located in Ho Chi Minh City, and was previously known as

the Stock Trading Center of Vietnam (STC). It was incorporated in 2000, and on August 8, 2007, it was renamed and

upgraded to the Ho Chi Minh Stock Exchange (HOSE). HOSE functions as an authorized body of Vietnam's SSC. As of

2006, there were 13 licensed securities companies. Of these, nine were licensed to conduct a full range of securities

services (including underwriting, brokerage, custody, research, portfolio management, and trading). The market

capitalization of HOSE came down from $165m in 2007 to $42m as of December 31, 2008. The market capitalization

reached VND537.4tn ($28bn) as of July 2010.

The Hanoi Securities Trading Center is based in the capital. It was incorporated in 2005, and deals with the buying, selling,

and auctions of shares and bonds. It was established five years after the STC was first founded.

Key policies



During the 1990s, enhanced institutional support and a steadily improving infrastructure made Vietnam’s growth rate one of

the highest in the region. This growth brought about impressive gains in the income and quality of life experienced by the

Vietnamese people. The country is among the fastest-growing economies in Asia, with a consistently high GDP growth rate

that has been maintained at around 8% in recent years.

Poor domestic investment by the government and inefficient state-owned enterprises remain a concern, however. The

Vietnamese government has initiated measures to reform state-owned enterprises in order to improve their financial

situation, but the pace at which these reforms are taking place is slow. A key problem with large and inefficient state-owned

enterprises is that they have been lent large amounts of money from state-owned banks. Consequently, the banks have

accumulated a large percentage of non-performing loans in their balance sheets.

Performance

GDP and growth rate

At over 8.7%, GDP growth in 2007 was the highest since the Asian Financial Crisis of the late 1990s. A rise in exports and

petroleum price hikes were largely responsible for this robust performance. In 2006, the economy grew at a rate of 8.2%,

which decreased to 6.3% in 2008. The global economic slowdown reduced GDP growth to 5.3% in 2009, before it

recovered to 6.8% in 2010. Datamonitor forecasts indicate that the growth rate is expected to decline marginally, to 6.2% in

2011.

Economic Landscape



Figure 5: GDP and GDP growth rate in Vietnam, 2004–14

-10.0

-8.0

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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

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illio

n

Year

GDP Real GDP growth rate


GDP composition by sector

The industrial sector – which includes mining and quarrying, manufacturing, electricity, gas, water supply, cement,

phosphate, and steel – makes the most significant single contribution to the country’s GDP, at 41.1%. The services sector

contributes 38.3%, while agriculture contributes 20.6%.

Economic Landscape



Figure 6: GDP composition by sector in Vietnam, 2010

Agriculture, 20.6%

Industry, 41.1%

Services, 38.3%


Agriculture

The country’s agricultural output dropped from around 43% in 2008 to 6% in 2009. However, the sector recovered in 2010,

registering growth of 15%. The country's main agricultural products are paddy rice, coffee, rubber, cotton, tea, pepper,

soybeans, cashew nuts, cane sugar, peanuts, and bananas.

Economic Landscape



Figure 7: Agricultural output of Vietnam, 2005–10

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tri

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n

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Agriculture output Growth rate

Note: sectoral breakdown given in local currency due to exchange rate fluctuations and their impact on growth figures.


Industry

Vietnam’s industrial sector contributes 41.1% to the country's GDP; the main segments include food processing, garments,

shoes, machine-building, mining, coal, steel, cement, chemical fertilizer, glass, tires, oil, and paper. The country’s industrial

output dropped from 25.7% in 2008 to 13.7% in 2009, due to the global economic slowdown. Industrial output recovered in

2010, recording growth of 19.4%.

Economic Landscape



Figure 8: Industrial output of Vietnam, 2005–10

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Industry output Growth rate



Services

Vietnam registered double-digit output growth during 2002–08, registering an average increase of 16.8%. However,

services output declined from a robust 30.1% in 2008 to 15.3% in 2010.

Economic Landscape



Figure 9: Services output of Vietnam, 2005–10

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Services output Growth rate



Fiscal situation

In June 2011 the Ministry of Finance stated that Vietnam had a budget deficit of VND27.78tn ($1.33bn) during January and

June 2011, which is less than the VND30.65tn deficit recorded one year previously. Vietnam’s budget deficit was estimated

to be around VND68.6tn ($3.52bn) for 2010, which constituted 5.8% of GDP. The country's budget deficit was less than the

National Assembly’s full-year estimate of 6.2%. The budget deficit for 2009 was around 8% of GDP. The fiscal deficit was

recorded at 5.5% in 2007 and at 4.7% in 2008. In January 2010 the government took action to bolster its fiscal position by

issuing only its second international sovereign bond, in the form of a 10-year $1bn bond. The bond issue was fully

subscribed, indicating that the government is not facing any major difficulties when it comes to accessing international debt

markets. However, the bond issue was tendered at a yield of 6.95%, higher than other comparable issues by Indonesia and

the Philippines.

Economic Landscape



Current account

The country consistently witnessed a current account deficit during 2002–08. The current account deficit increased from

$0.3bn in 2006 to around $7bn in 2007 (or from 0.5% to 10.3% as a percentage of GDP), before climbing further to $12.7bn

in 2008 (which is 15.5% of the country’s GDP). Vietnam had a current account deficit of around $2bn in 2010, which was

lower than the estimated figure of $4bn.

Meanwhile, the country’s trade deficit was around $17.9bn for 2010, higher than the figure of $12.3bn recorded in 2009.

Exports and imports

Vietnam had recorded increased exports every year since 2003 until the global economic crisis led to a decline in 2009.

The country’s exports came down to $59.5bn in 2009, from $67bn in 2008. Exports recovered in 2010 to reach $62.2bn.

Similarly, imports came down from $85bn in 2008 to $72bn in 2009, before recovering to $80bn in 2010. Total trade in the

country dropped from $152bn in 2008 to $131.4bn in 2009, before recovering to $142.4bn in 2010. Vietnam’s major exports

include crude oil, marine products, rice, coffee, rubber, tea, garments, and shoes. In 2010 Vietnam's major export partners

were the US (which accounted for 20% of Vietnamese exports), Japan (10.7%), China (9.8%), and South Korea (4.3%).

Vietnam’s major imports include machinery and equipment, petroleum products, fertilizer, steel produc ts, raw cotton, grain,

cement, and motorcycles. In 2010 Vietnam's major import partners were China (which accounted for 23.8% of Vietnamese

imports), South Korea (11.6%), Japan (10,8%), Taiwan (8.4%), Thailand (6.7%), and Singapore (4.9%).

Economic Landscape



Figure 10: External trade of Vietnam, 2006–10

43

52

6760

6248

67

85

728090

119

152

131

142

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Exports Imports Total trade

Source: D A T A M O N I T O R

External debt

The country’s external debt increased from $27.8bn as of December 31, 2009 to $33.4bn as of December 31, 2010.

International investment position

Total foreign investment

According to the United Nation Conference on Trade and Development, foreign direct investment inflows into the country

dropped from $8bn in 2008 to $4.5bn in 2009.

Credit rating

Recently, Standard & Poor’s (S&P) lowered Vietnam's foreign currency rating from BB to BB-, and lowered its local

currency rating from BB+ to BB. Furthermore, S&P maintained a negative outlook on the Southeast Asian nation's long-

term credit ratings. It maintained short-term credit ratings at B. These lower ratings are expected to increase borrowing

costs to both Vietnam and its domestic companies, and the country’s increasing lending growth offers serious cause for

concern. S&P has warned that if lending growth continues unchecked, then Vietnam runs the risk of further downgrading.

Economic Landscape



Monetary situation

Key monetary indicators

Inflation

The country recorded inflation of 7.5% in 2006, which rose to 8.1% in 2007 before reaching a staggering 23.1% in 2008.

This upward trend was due to an increase in the cost of foodstuffs in the first half of 2008. As a result of declining food and

fuel prices, inflation came down to 6.8% in 2009; however, rising oil and food prices increased inflation to 9.4% in 2010.

Inflation reached 22% in July 2011, a figure which poses a serious threat to Vietnam’s economy. The government has to

restore macroeconomic stability, and must remain committed to slowing down lending growth.

Figure 11: Consumer price index and consumer price index-based inflation in Vietnam, 2004–14

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Consumer price index Inflation


Interest rate

The State Bank of Vietnam raised two of its key interest rates in March 2011, in order to counter increasing inflation, which

could become a major threat to the country's macroeconomic stability in the future. The rediscount rate (which is the rate

the central bank pays commercial banks on their surplus funds) was raised from 7% to 12% in March 2011. The rate for

Economic Landscape



recapitalizing banks was also raised, from 11% to 12%. The central bank has kept its benchmark lending rate unchanged at

9% since November 2010, and opted to cut the reverse repo rate from 15% to 14% in July 2011. This is expected to lower

the cost of funds for banks through open market transactions.

Banking sector

The central bank is not independent, as it is under the control of the government and, ultimately, the CPV. There are 37

joint stock commercial banks, five state-owned commercial banks, four joint venture banks, 35 foreign-invested branches,

and 43 representative offices. The four primary state-owned banks controlled 70% of lending in 2007. Foreign banks may

now open 100%-owned subsidiaries, branches, or representative offices, and are allowed to provide almost all of the

services provided by Vietnamese banks. Lending by state banks is still used as an arm of government policy, particularly in

terms of subsidized interest rates and debt relief to farmers and large state-owned enterprises.

Unemployment

The industry sector employs around 43% of the population, followed by the services sector and the agriculture sector with

shares of 38% and 19% respectively. Unemployment increased from 4.7% in 2007 to 6.1% in 2009. The unemployment

rate dropped to 5.1% in 2010 after the country registered improved GDP growth.

Economic Landscape



Figure 12: Unemployment and unemployment rate in Vietnam, 2004–14

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Outlook

Vietnam has to maintain macroeconomic stability by lowering credit growth and inflation. The country has already been

downgraded by most rating agencies, and there remains the possibility of further downgrades if the government is unable

to tackle its increasing trade deficit and credit lending. Vietnam has witnessed strong demand for the US dollar, which is

due to a large trade deficit and high inflation. This has resulted in considerable downward pressure since late 2009, which

pushed the State Bank of Vietnam to devalue the country's currency on many occasions. The devaluation of the dong

against the US dollar amounted to 5% in November 2009, and in February 2010 a devaluation of 3% took place. The dong

was devalued by 8.5% in February 2011, when the official rate fell by 8.5%. Overall, during 2008 to early 2011 the value of

the dong fell by more than 18%. Accelerating inflation in the first half of 2011 has put even more pressure on the currency,

which could result in the central bank devaluing it further still. Devaluation is likely to make exports expensive, and servicing

of debt in foreign currencies would also become more costly. Vietnam’s manufacturing sector could be affected, as it

imports intermediate goods that will become more expensive were devaluation to continue apace. The downward pressure

of the dong and the subsequent devaluations pose a significant risk to the country in the medium term.

Social Landscape



SOCIAL LANDSCAPE

Summary

Vietnam has a high rate of disability, and the Ministry of Labor, War Invalids, and Social Affairs administers welfare in the

country. The country has a young population, as more than half of its citizens are below 27.8 years old. The country’s

population remains predominantly rural, although the percentage of the population living in urban areas has been

increasing since the initiation of the Doi Moi economic reforms in 1986.

Evolution

The country's welfare system focuses on the victims of the Vietnam War (1954–75), such as individuals disabled in combat

or by toxic chemicals and the families of fallen combatants. Around 5 million Vietnamese – which amounts to more than 6%

of the population – were in the disabled category in 2005. The Ministry of Labor, War Invalids, and Social Affairs

administers welfare in the country, which has a social insurance system with provisions for old age, disability, and death;

sickness and maternity; and workplace-related injury. Coverage is mandatory for state employees, non-state enterprises

with more than 10 employees, and foreign-invested enterprises. Special programs exist for government civil servants and

armed forces personnel.

The government of North Vietnam established a public health system in 1954 that reached down to the village level. This

system was extended to the south after reunification in 1976. However, in the late 1980s the quality of healthcare began to

decline as a result of budgetary constraints, a shift of responsibility to the provinces, and the introduction of charges.

Inadequate funding has led to delays in planned upgrades to water supply and sewerage systems. As a result, almost half

of the population has no access to clean water in 2005, a deficiency that promotes such infectious diseases as malaria,

dengue fever, typhoid, and cholera. Inadequate funding also has contributed to a shortage of nurses, midwives, and

hospital beds.


Demographic composition

Composition by age and gender

In Vietnam, 25.2% of the population is in the 0–14 age group, 69.3% of the population belongs to the 15–64 age group, and

5.5% of the population is in the 65+ age group. According to Central Intelligence Agency World Factbook estimates,

Vietnam had a median age of 27.8 years in 2011, which means that half of the population was below this age. Vietnam’s

demographic structure works in its favor, as there are regular additions to its labor force. The gender ratio in the country is

around 1.11 males per female. The infant mortality rate in the country is around 20.9 deaths per 1,000 live births. The life

expectancy of the total population is around 72.18 years.

Social Landscape



Table 9: Mid-year population by age, 2010

Age Female Male

0–4 3.3 3.6

5–9 3.5 3.7

10–14 4.0 4.3

15–19 4.4 4.7

20–24 4.4 4.6

25–29 3.7 3.9

30–34 3.5 3.5

35–39 3.2 3.1

40–44 3.0 2.9

45–49 2.7 2.4

50–54 2.0 1.7

55–59 1.4 1.1

60–64 0.9 0.7

65–69 0.9 0.7

70–74 0.8 0.5

75–79 0.6 0.4

80+ 0.7 0.3


Urban/rural composition and migration

Vietnam is a predominantly rural country, one that has become increasingly urbanized since the Doi Moi economic reforms

were introduced in 1986. These reforms successfully boosted income and employment opportunities in Vietnamese cities.

In 2008, 27.8% of the country's population was urban and 72.2% was rural, down from 85% in the early 1980s. Urban

areas such as Ho Chi Minh City, Hanoi, Da Nang, and the Central Highlands have attracted significant numbers of

migrants, who are continuing to move from the north of the country to the southern region.

Religious and ethnic composition

According to the 1999 census, the country’s population is comprised of the following religious groups: Buddhist (9%),

Catholic (7%), others (4%), and none (80%).

Social Landscape



Figure 13: Vietnam – composition of religion

Catholic

7%

Buddhist

9%

Others

4%

None

80%


Health

Vietnam spent around 5.1% of its gross domestic product (GDP) on healthcare (both public and private expenditure) in

2001, which is twice as much as neighboring Laos. In Vietnam, only one-quarter of health spending is from the public

sector, with the rest coming from private sources. Compared to Vietnam, only Cambodia has a lower share of public-to-

private spending in the region; despite higher operating costs in remote areas, most healthcare spending in such locations

has benefited from richer households, according to an International Monetary Fund report. The low percentage of

government healthcare spending in Vietnam is a cause for concern. Given that the country has witnessed GDP growth in

excess of 7% since 2002, the rich have been able to bear out-of-pocket healthcare expenses, but the poor continue to lack

access to medical services.

Social welfare

Social welfare policies

The Ministry of Labor, War Invalids, and Social Affairs administers welfare in Vietnam. The country has a social insurance

system with provisions for old age, disability, and death; sickness and maternity; and workplace-related injury. Coverage is

Social Landscape



mandatory for state employees, non-state enterprises with more than 10 employees, and foreign-invested companies.

Special programs exist for civil servants and armed forces personnel.

Performance

Healthcare

Income distribution

Vietnam's GDP per capita increased at an average annual rate of 5.9% during 2001–06 in real terms. However, income

inequality remains high; the country's Gini coefficient rose from 0.345 in 1990 to 0.432 in 2006. As a measure of income

inequality, the Gini coefficient takes a value of 0 to 1, with values closer to 1 indicating a higher inequality in terms of

income distribution. Income varies widely across regions. Data show that during 1999–2004, the average monthly income

per capita rose by VND45,500. However, the Central Highlands registered the lowest increase, while the southeast region

recorded the maximum increase of VND305,200 in per capita income.

Education

Although five years of primary school education are considered compulsory and 92% of eligible children were enrolled in

primary school, only two-thirds completed the fifth grade in 2000. The cost of tuition, books, and uniforms and the need to

supplement family income are the two main reasons children drop out. A huge disparity exists between primary school

enrollment in cities and the rural parts of Vietnam. In some rural areas, only 10 to 15% of the children progress beyond third

grade, whereas almost 96% of pupils in Ho Chi Minh City complete fifth grade. The total literacy rate was estimated to be

93.4% in 2006. According to the World Bank, public spending on education was around 5.4%of GDP in 2008.

Outlook

The United Nations Educational, Scientific, and Cultural Organization's (UNESCO's) Asia Pacific education office praised

Vietnam’s efforts in implementing the United Nations Decade of Education for Sustainable Development 2005–14

framework in July 2007. UNESCO stated that Vietnam was one of the first countries to establish a national action

committee on the issue of sustainable development. A National Action Program has been initiated to improve the quality of

education in the country, and also seeks to raise student awareness of sustainable development issues. Vietnam’s efforts

to improve educational quality and to raise awareness of sustainable development are important first steps towards the

country’s long-term progress.

Technological Landscape



TECHNOLOGICAL LANDSCAPE

Summary

Vietnam’s telecoms sector is growing quite fast, and the Internet has become very popular in the country. The number of

Internet users doubled during 2005–06. In addition, at the start of the new millennium the country decided to embark upon

the creation of Millennium Science Institutes (MSIs). However, the country was granted no patents in 2006 and just one in

2007. The Central Committee of the Communist Party of Vietnam recognizes the importance of biotechnology, and has

initiated steps to foster its development in the country. Japan is funding Vietnamese power projects based on renewable

resources so that it can receive required Certified Emission Reduction credits.

Evolution

Mobile telephony continues to grow at some speed despite severe price constraints. Vietnam is mirroring China and India

on a smaller scale, with Western-educated Vietnamese citizens returning to the country to add foreign management and

technical experience to the low-cost workforce. Vietnam is one of the fastest growing markets for technology of any sort –

and telecoms in particular – as large infrastructure projects continue to attract investment and consumers. The Internet is

becoming very popular in the country, and the number of users jumped from 5.9 million in 2005 to 14.7 million in 2006, a

rate of around 150%.


The Ministry of Science and Technology is responsible for technological and scientific initiatives in the country. Vietnam

embarked upon the development of a series of MSIs starting from 2000. These institutes will have the following

characteristics:

They will be efficient, small in size, and usually located within existing institutions.

Their principal activity will be scientific research, and their principal product will be educated individuals.

Each institute will have a small permanent scientific staff of very high quality, a flow-through of junior scientists,

and numerous visiting scientists.

Institutes will be autonomous with regards to local institutional structures. At the same time, they will have links to

other institutions, the private sector, the government, and one another.

Each institute will feature a leader of major scientific stature, with entrepreneurial qualities and charisma, who is

able both to work at the frontiers of research and to serve local needs.

Institutes should be flexible in concept and design, and adapted to local conditions.

Intellectual property

There is practically no innovation in Vietnam. The country was granted no patents by the US Patent and Trademark Office

in 2006, and just one in 2007.




Performance

Telecom

Vietnam has witnessed rapid growth rates in terms of both mobile and fixed line users. Mobile penetration per 100

individuals increased from 44.4 in 2007 to 72.1 in 2008, and then to 94.7 in 2009, which indicates that the country

witnessed strong growth over the period. The country recorded impressive mobile penetration growth rates of 51% and

62% in 2007 and 2008 respectively, and mobile subscription growth rates stood at 61.6% in 2006 and 32.6% in 2007. The

number of fixed line subscribers grew at a rate of 16.7% in 2006 and 13.8% in 2007.

Figure 14: Growth rate of mobile and fixed line subscribers in Vietnam, 2002–12

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Internet

The number of Internet users increased from 21 million in 2008 to around 25 million in 2009. Vietnam registered a growth

rate of around 19% in 2009, having previously recorded an exceptional growth rate of 150% during 2005 and 2006.




Figure 15: Internet users and usage growth rate in Vietnam, 2003–13

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Biotechnology

In June 2005, the Central Committee of the Communist Party of Vietnam issued decree number 50 regarding the

development and application of biotechnology in the country, followed by the prime minister's decision on the promulgation

of the government’s action plan to pave the way for mastering key biotechnologies and their application in agriculture,

fisheries, production, environmental protection, and security and defense.

Outlook

Vietnamese Prime Minister Nguyen Tan Dung approved an investment of VND1.7tn ($87.2m) for the national program on

IT application in state agencies by 2015. The program targets IT infrastructure for the development of e-governance, the

expansion of IT applications in the state sector, and the provision of information and public services. The country also plans

to build a database center to link central and local information systems, and to build national database centers focused on

people, natural resources and the environment, finance and economics, industry, and trade in order to boost e-governance

in the public sector. It intends to introduce video-conferencing between government, ministerial, and local representatives,

and expects state agencies to open up their websites and offer online public services.

In December 2008, the deputy prime minister affirmed that the state is ready to invest $20.8m to solve pressing issues in




agriculture relating to seeds, new breeds, and post-harvest technology. A new technology research center will be built in

Hanoi, with a projected investment of $350m sourced from Japan’s Official Development Assistance program. The center

will aim to effectively implement the country’s space technology research and application strategy by 2020. It will be located

at the Hoa Lac Hi-Tech Park, which is expected to include a satellite manufacturing plant, an integrating and testing center,

a magnetic field testing area, a satellite control center, and an observatory model. Work on the new center is expected to

begin in 2010 and to be completed by 2017.

Legal Landscape



LEGAL LANDSCAPE

Summary

The judiciary of the country is not independent, as it is under the control of the Communist Party of Vietnam (CPV). The

country’s accession to the World Trade Organization (WTO) has eased regulations in sectors including law, banking, and

engineering. Prospective judges are vetted by the CPV to ensure that only supporters of the party are employed to the

available positions. The judicial system in the country is two-tiered, with courts of first instance and courts of appeal.

Vietnam has differential tax rates, which also vary for Vietnamese citizens and foreigners. According to the World Bank's

Doing Business indicators, Vietnam lags behind the Southeast Asian average in terms of the number of procedures and

days that are required to start a business.

Evolution

The judicial system of Vietnam is under the control of the CPV. The Constitution of 1980 is explicit when it states that the

CPV is to be "the force leading the state and society." Regulatory conditions in the country have constantly improved since

the government’s decision to join the WTO in January 2007. Furthermore, the 2000 bilateral trade agreement came into

effect in December 2001. Vietnam has allowed 100% foreign-owned companies in sectors such as law and engineering

since January 11, 2007. The country’s accession to the WTO has led to the opening up of the banking and non-insurance

industries. Foreign commercial banks have been able to establish representative offices, branches, and commercial joint

venture banks (with foreign capital contributions not to exceed 50% of chartered capital) since April 1, 2007. The foreign

credit institution must have total assets of more than $10bn at the end of the year prior to application in order to establish a

100%-foreign-invested finance company or a joint venture finance company.


Judicial system

The judicial selection process favors supporters of the CPV. Extra-judicial prison sentences are frequently imposed through

administrative procedures without due process of law, and these decisions are not subject to judicial review. Trials are

generally open to the public, and defendants have the right to be present at the trial, the right to an attorney, and the right to

cross-examine witnesses.

Structure of the system

The country has a two-tier court system, which includes courts of first instance and courts of appeal. Judgments are

susceptible to further reviews under special circumstances. The court system consists of the Supreme Court, the provincial

people's courts, and the district people's courts. There are specialized courts at the Supreme Court and at the provincial

levels; these include the criminal court, civil court, economic court, administrative court, and labor court.

Legal Landscape



Legislation affecting business

Establishing operations as a foreign enterprise

There are five main means available to a foreign enterprise to start its operations in Vietnam. Those are wholly foreign-

owned companies; joint ventures; business-co-operation contracts (which are used in sectors where participation is

restricted, such as the oil, gas, and telecommunications industries); build-operate-transfer projects; and foreign investment

shareholding companies, also known as joint stock companies. The latter allow for the transformation of existing foreign-

investment enterprises through public trading of shares on the bourse.

Tax regulations

Income tax

Vietnam has differential tax rates from 0% to 35%, and there are varying rates for Vietnamese employees and foreigners.

Non-residents are subject to a flat 20% tax on their income from Vietnam. From January 1, 2009, a personal deduction

worth VND4m per month has been granted to each taxpayer, and VND1.6m per month is granted to each dependent. This

government initiative serves to reduce taxable income, giving more disposable cash to Vietnamese citizens.

Corporate tax

The corporate income tax rate was lowered from 28% to 25% as of January 1, 2009, with an additional 30% reduction in

the corporate income tax bill for eligible small- and medium-sized enterprises.

Capital gains tax

Foreign companies’ gains on the transfer of interests in a foreign-invested or Vietnamese enterprise (a "capital

assignment") are subject to a flat tax of 28%.

Withholding tax

Vietnam does not levy withholding tax on dividends paid to residents or non-residents. A 10% withholding tax is imposed on

interest payments on offshore loans, unless the rate is reduced under an applicable tax treaty.

Value-added tax

Value-added tax is applied at three different rates: a standard rate of 10% and reduced rates of 0% and 5%. The 0% rate

applies to exports of software and services to firms operating in export processing zones. The 10% rate applies to 16

specific categories of goods and services

Corporate governance

Most enterprises in Vietnam have inspection committees. The inspection committee is responsible for overseeing all

operations and business activities of the company on behalf of the shareholders, according to Enterprise Law 1999. The

law also specifies that an inspection committee is required for any company that has more than 11 shareholders. In

practice, however, many such committees in Vietnam lack the adequate authority to perform their roles to the fullest extent.

Legal Landscape



The members of an inspection committee are often subordinate to the company's senior management, and therefore lack

sufficient confidence or authority to identify and challenge any malpractice that they see occurring. Vietnam has weak

internal corporate controls that guard against related party transactions that could be detrimental to the firm and its

shareholders and potential conflicts of interest for management. The majority of firms surveyed have no written guidelines

on either of these issues and are therefore susceptible to abuse.

Performance

Effectiveness of the legal system

According to the World Bank's 2011 Doing Business report, Vietnam lags behind other countries in the Southeast Asian

region in terms of starting a business. The number of procedures required to start a business in Vietnam is nine, higher

than the East Asia and Pacific regional average of 7.8. In terms of the number of days required to start a business, it takes

an entrepreneur 44 days to do so in Vietnam, which is higher than the regional average of 39. The overall rank of the

country in terms of doing business was 78 in 2011, an improvement over its 2010 rank of 88.

Outlook

Vietnam’s membership of the WTO took effect in January 2007, and will ensure that the government continues with its

policy of liberalization. Despite ongoing support for protectionist policies, the government is expected to ease capital

account restrictions. However, it is unlikely that Vietnam will introduce full capital account liberalization in the near term.

The removal of tariff and non-tariff barriers is expected to be a long and drawn-out process, especially considering the

imposition of monitoring measures on garment exports by the US and the EU’s decision to impose anti-dumping measures

on leather shoes. Vietnam is likely to continue with its policy of liberalization, albeit rather slowly.

Environmental Landscape



ENVIRONMENTAL LANDSCAPE

Summary

Despite starting late in terms of recognizing the environment as a separate legal domain, Vietnam has fairly comprehensive

environmental laws. The country is party to various international agreements and pacts; however, it has witnessed rapid

development in the last few years, which has led to an increase in carbon dioxide emissions. The country’s carbon fuel

usage has also increased in recent years.

Evolution

Environment law did not exist as a separate legal domain or a separate legal branch before 1993. This was mainly because

of the fact that the state’s leading priorities were to heal the wounds of wars and to rebuild the economy. The National

Assembly passed the Environmental Protection Law, the country’s first ever environmental law, on December 27, 1993.

After 12 years, a new Environmental Protection Law was passed by the National Assembly on November 29, 2005.


Environmental regulations

The country has various ecological laws, such as the Mineral Law, the Law on Protection of Public Health, the Forest

Protection and Development Law, the Petroleum Law, the Land Law, the Water Resources Law, and the Enterprise Law.

Moreover, even the Civil Code and the Penal Code contains provisions on environmental protection. In 2003, the

government established the Ministry of Natural Resources, and approved the National Strategy for Environmental

Protection. In 2004, the Environmental Impact Assessment requirements for project approvals were increased, and the

Strategy for Sustainable Development (Agenda 21) was adopted.

Participation in global efforts/agreements/pacts

The major international pacts and agreements that Vietnam is party to are: Biodiversity, Climate Change, Climate Change-

Kyoto Protocol, Desertification, Endangered Species, Environmental Modification, Hazardous Wastes, Law of the Sea,

Ozone Layer Protection, Ship Pollution, and Wetlands.

Performance

Environmental impact

Industrial production in Vietnam has increased at an extremely fast pace. However, the enterprises responsible have poor

environmental records due to the obsolete equipment they use and their inadequate treatment of wastewater and air

emissions. Many industrial pollutants have the potential to do considerable damage to the health of the country’s citizens.

For instance, Vedan (Vietnam) Enterprise Corp., a unit of Taiwan's Vedan Group, makes monosodium glutamate. The

company was caught illegally discharging untreated wastewater from its monosodium glutamate factory in Dong Nai

province into Thi Vai River in 2008, affecting individuals living along the river. It agreed to pay a VND218.9bn ($11.5m) fine

as compensation for the environmental damage it caused to three provinces in South Vietnam. The government of Vietnam

introduced a penalty for water pollution in early 2007; however, enforcement continues to be erratic.

Environmental Landscape



Despite the decision of the prime minister to close down polluting units if they fail to adopt cleaner technologies, the

situation has not improved, as environmental policies tend not to be enforced. Although Vedan was penalized, Vietnam

continues to be plagued by ineffective enforcement, meaning that unabated pollution will continue in the medium term.

With rapid development over the last few years, Vietnam's carbon dioxide emissions have consistently increased.

Emissions rose from around 93.7 million metric tons in 2008 to around 100.3 million metric tons in 2010. The growth rate

for carbon dioxide emissions was 4.0% in 2009 and 2.4% in 2010, with the average increase of 7.8% during 2003–10.

Figure 16: Carbon dioxide emissions in Vietnam, 2003–10

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Outlook

The Ho Chi Minh City authorities agreed to spend around VND54bn ($2.77m) from its budget to protect the water quality of

a section of the Dong Nai River basin in 2011. The money will be used to build automatic monitors of water quality, and to

increase supervision of water discharge into the river by industrial parks, residential localities, and trading facilities.

Currently, wastewater from domestic usage has reached nearly 1.2 million cubic meters, which is released into the

environment every day. The city authorities plan to build a total of nine large wastewater treatment facilities by 2020, in

order to reduce the direct release of wastewater.

Appendix



APPENDIX

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