Vietnam's communist party leaders urge policies to support private sector, challenge state companies

Bloomberg/TN News

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This picture taken on November 14, 2014 shows men working at a private steel workshop which produces steel rods for construction from scrap iron in the Dong Anh district on the outskirts of Hanoi. This picture taken on November 14, 2014 shows men working at a private steel workshop which produces steel rods for construction from scrap iron in the Dong Anh district on the outskirts of Hanoi.


Nguyen Hieu, chief executive of a Hanoi construction company, last year was turned down by several banks for a $800,000 loan for a project the company had won and had already invested nearly half a million dollars.
"It’s very difficult for small, private companies like us to get bank lending," said Hieu, whose company employs a few dozen. "They prefer to lend to big businesses and state-owned companies. We’ve had to trim down operations due to a lack of capital."
Vietnam’s ruling Communist Party says it recognizes the challenges companies like Hieu’s face and is setting a stronger tone to support private businesses over the next five years, as frustration grows over the slow reforms at state companies. The nation is set to be one of the fastest-growing economies in the world, yet local firms have struggled to benefit while foreign manufacturers reap the export boom.
In his opening address January 21 at the most important Communist Party conclave that occurs every five years, General Secretary Nguyen Phu Trong said the "private sector is an important engine of the economy” and urged for policies to support it. An online draft of the party’s five-year economic plan, which the 1,510 delegates are expected to approve this week, calls for private businesses to get “equal access” to credit, land and other resources--the level playing field companies have been seeking for years.
Cautiously hopeful
While many are skeptical the words will translate into policy change soon, other business leaders say they’re cautiously hopeful.
“It’s good they recognize the importance of the private sector but implementation is the key thing,” said Hieu. “We still don’t know how much of that idea will be translated into policies and regulation to really help private businesses.”
Along with a new slate of leaders, the party congress also sets the tone for economic reform and growth. The proposed socioeconomic plan through 2020 shows the nation will target as much as 7 percent average annual expansion and gross domestic product per capita at $3,200 to $3,500 by 2020 from the current International Monetary Fund estimate of about $2,170. If Vietnam hits these goals, it will be one of the fastest growing economies in the Asia-Pacific region, according to the IMF.
Vietnam’s stock market has attracted foreign investors, with overseas investors net buyers for the 10th consecutive year in 2015. The benchmark VN Index has lost 7.8 percent so far this year, as emerging-market stocks face a rout on China’s slowing economy and dropping oil prices.
Favorable conditions
The 2016-2020 economic blueprint calls for the creation of “favorable conditions" to support private companies. The plan also lays out accelerating the privatization of state enterprises, resolving bad debt and improving the nation’s competitiveness. Several leaders, including Trong, have stressed that Vietnam is at risk of falling behind regional peers. Average growth in 2011 through 2015 was 5.9 percent, lower than the 6.5 percent-to-7 percent target that the country’s leaders had set.
Delegates at the conference also registered a different tone from the previous five-year plan. "The idea of promoting the private sector is expressed more clearly and deeply this time with more details to support it," said delegate Nguyen Thanh Ngoc, vice-chairman of Tay Ninh province. "The document will pave the way for the government to enact more policies and regulations later to support private businesses."
State-owned companies use almost 50 percent of Vietnam’s public investment and tap 60 percent of the country’s bank loans, while contributing to just a third of GDP, according to government data. The economy is forecast to expand 6.7 percent this year, the same pace as in 2015, according to Bloomberg surveys.
"The party has to maintain economic growth and they are increasingly aware that state-owned companies aren’t providing that," said Tony Foster, the Hanoi-based managing partner in Vietnam for the law firm Freshfields Bruckhaus Deringer LLP. "In order to maintain satisfaction among the population and their own power, they have to make sure the private sector gets more and more support."

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