It’s time for domestic changes in Vietnam

Author: Thomas Jandl, VNU

In 2015 was Vietnam’s year to consolidate its diplomatic position in the international arena, 2016 will be crucial for bringing domestic political structures in line with the country’s new position in the global economic and security architecture. With respect to the economy, Vietnam must adapt its regulatory system to this new position; politically, the Party must complete its pivot towards the West. The 12th Party Congress in early 2016 will set that course.

Economically, the successful conclusion of Trans-Pacific Partnership (TPP) negotiations adds Vietnam to a club of 12 nations linked by a set of common trade and investment rules. This club links economies accounting for 40 per cent of world GDP (about US$28.1 trillion), one-third of global trade (US$11 trillion) and about 800 million consumers. Yet membership comes with conditions that require Vietnam delivers significant domestic changes.

Most importantly, the heavily protected state-owned enterprises (SOEs) will have to live — or die — under the same rules and regulations as the private sector. The Communist Party of Vietnam has long used SOEs as an employer of convenience, a career option for elite families and friends, and a way to legitimise communist government in a country that is now clearly capitalist. All this has held the economy back.

Productivity and efficiency of capital use in SOEs have been abysmal compared to the domestic private sector, and especially compared to small and medium businesses. Still SOEs have received the lion’s share of credit and government contracts. This will have to end. As a result, the ways in which elites exercise economic control and obtain rents will change.

Most of these economic changes are painful for elites. Vietnam’s leadership knows this. It has pushed for the TPP precisely because it will force the hands of the conservative elites that benefited under the previous system. For reformers — a term that generally describes pro-market, Western-leaning officials, as opposed to the more ideologically orthodox, pro-Beijing faction — the TPP could force the domestic reforms they consider indispensable. Reformers have embraced the TPP because necessary reforms would be impossible to push through the Party’s power structures without a bigger prize that could be offered in exchange. The TPP offers exactly such a prize.

The TPP, alongside China’s aggressive stance in the South China Sea (Vietnam’s East Sea), may force political change in Hanoi. When the ruling Communist Party stages its 12th Congress in early 2016, it will be the first time in which the debate between reformers and conservatives appears settled from the outset. The top leadership appears aligned behind the pivot towards the West — or is at least resigned to accept the predominance of the pro-Western faction.

That is a real change. Even while street protests against China shook Hanoi in 2014–15, some Vietnamese leaders were still said to distrust Washington. Rather than pursuing closer ties with the United States, they preferred smoothing things over with Beijing. Yet in 2015, eight of the 16 Politburo members visited the United States, including National Assembly Chairman Nguyen Sinh Hung and Minister of Public Security Tran Dai Quang. Even such an ex officio defender of ideological orthodoxy as Communist Party General Secretary Nguyen Phu Trong visited Washington.

With China continuing to stir up emotions on Vietnam’s streets and the TPP being promoted as the next step towards prosperity, it is likely that the reformists will consolidate their power at the Party Congress. Prime Minister Nguyen Tan Dung is aiming for an unusual promotion from head of government to head of the Party. He appears to enjoy the support of both the Party’s Central Committee and Vietnam’s economic elites. And if he succeeds in his gambit, he will be able to place his protégés in positions of power as well.

If the Party Congress does consolidate the power of the reformists, what will that mean for Vietnam in 2016 and beyond?

Even reformists will not rapidly open the doors to wider democratic reforms. Yet they will change the ways in which Party supporters are rewarded. Vietnam is not a totalitarian state. The state apparatus often withdraws in the face of public contestation and the political space for citizens is widening.

Hence, in the years after the 12th Congress, the Party will again try to give the Vietnamese people a reason to believe that they are better off with the Party than without it — or at least that they have no reason to risk standing up to it. That will mean an emphasis on economic growth, with assurances that the benefits will reach all strata of society. Quality-of-life issues such as reducing environmental degradation and corruption as well as improving health care will also be emphasised.

Of course, the new leadership will try to find an agreeable arrangement with Beijing. But in 2016, Hanoi’s bargaining power will increase again. In 2015, Vietnam placed itself in a better international position vis-à-vis Beijing. The period after the 12th Party Congress should allow Hanoi to speak with one voice when negotiating with Beijing, further adding to Vietnam’s leverage.

Thomas Jandl is a founding partner of TJMR Asia Consulting, a firm advising on economic policy and investment issues in Vietnam, and a non-resident scholar at the Social Sciences and Humanities department at Vietnam National University, Hanoi.

This article is part of an EAF special feature series on 2015 in review and the year ahead.

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