At the end of June, the Vietnamese government announced plans to eliminate its current 49 percent cap on foreign ownership of listed companies. While this move only extends to companies that are not in sectors considered vital for national security, it represents a larger liberalization than what was anticipated—an increase to a 60 percent cap on foreign ownership—and is aimed at boosting foreign investment in the country.
Why this broad push? While the Vietnamese government aims to privatize over 250 state-owned enterprises (SOEs) this year, efforts are falling behind, in part because of a lack of investors and available stock. In 2013, total state investment in Vietnam represented 40 percent of all investment. To compare, this is a larger share of state investment in 2013 than in China, which started market reforms before Vietnam and has a higher GDP per capita. For China, state investment accounts for only 25 percent of total investment. While non-state Chinese investment is overwhelmingly private and domestic (70 percent), foreign investment plays a larger role in Vietnam and represented 20 percent of total investment in 2013.1
The chart shows the growth in state, non-state and foreign investment in Vietnam relative to 1995 levels. While foreign investment growth has fallen behind growth in state and private funding, there was a surge between 2006 and 2007. Two factors may help explain this jump. First, in 2005, Vietnam passed a new package of enterprise and investment laws, which regulated investment activities as well as provided a framework for investor rights and guarantees against nationalization of investor assets. Second, Vietnam became a member of the World Trade Organization (WTO) in 2007. While the recent lifting of the limit on foreign ownership is in itself a smaller step than the broader reforms associated with WTO membership, it does mark another move towards integrating Vietnam into the world economy. Moreover, it compliments Vietnamese efforts to privatize SOEs and liberalize trade and investment through the Trans-Pacific Partnership (TPP).
Investment in Vietnam, 1995-2013
Source: General Statistics Office of Vietnam.
1. Author's calculations using Total Investment in Fixed Asset data from China Statistical Yearbook (2014) and Vietnam General Statistics Office.