Why Vietnam doesn’t squeeze its super-rich tycoons

Unlike China’s crackdown on entrepreneurs, Vietnam’s Communist Party allows private tycoons to accumulate wealth in relative peace.

Compared to the Communist Party-led crackdown on private entrepreneurs and businesses seen in China, Vietnam’s thriving tycoons have so far had a comparatively easy go under Hanoi’s communist rule.

So when rumors recently circulated on social media that Pham Nhat Vuong, Vietnam’s richest man and chairman of the Vingroup, was in hot water with authorities, speculation quickly swirled a Chinese-style squeeze on the nation’s largest private company could be in the offing.

The Communist Party of Vietnam’s (CPV) “burning furnace” anti-corruption campaign, first launched in 2016, has brought down thousands of public officials and Party cadres since, most recently for Covid-related corruption and graft.

Earlier this month, however, a Ministry of Public Security spokesman denied the rumors surrounding Voung, including that he faced travel restrictions. The Ministry of Public Security’s statement, however, should be taken with a generous pinch of salt. 

Earlier this year, the ministry also denied that Trinh Van Quyet, president of FLC Group, a galloping conglomerate that owns the low-cost airline Bamboo Airways, was subject to investigation.

Quyet – who was supposedly Vietnam’s richest person in 2017 but saw his assets plummet by 2020 – was arrested shortly afterward for stock market manipulation involving his company’s shares. 

Le Hong Hiep, a senior fellow at the ISEAS-Yusof Ishak Institute’s Vietnam Studies Program, has argued that the likelihood Vuong “has fallen from grace and will be sanctioned by the Vietnamese government is slim.” 

Whether Vuong is safe or not, it raises questions about the current state of play between the Communist Party and the country’s thriving private sector. In 1986, the Party introduced free-market reforms, known as “doi moi”, which effectively ended state control over the entire economy. 

Vietnam’s gross domestic product (GDP) rose from US$26 billion that year to $271 billion in 2020 as the nation transformed into an export powerhouse. According to one estimate, the number of “super-rich” Vietnamese worth more than US$30 million grew by 320% between 2000 and 2016, the fastest rate anywhere in the world. 

The introduction of more and more capitalism in the communist-run state has been embraced by the Vietnamese people, opinion polls show.

Pew Research, a US-based think tank, asked respondents worldwide in 2006 if they agreed that “most people are better off in a free market economy, even though some people are rich and some are poor.”

In the United States, 72.1% agreed; in Vietnam, 95.4% were in favor, by far the largest percentage of any country polled.  

That obviously points to contradictions hybrid capitalist-communist system, not least in regard to wealth distribution. In 2013, Nguyen Phu Trong, the party chief, warned that “the rich-poor divide only shows signs of getting worse.”

But Vietnamese tycoons haven’t really been impacted by Trong’s anti-corruption campaign so far “because the campaign has primarily targeted corrupt government officials and SOE managers,” Hiep told Asia Times.  

Only recently have some business executives been targeted, he added. But this is “mainly because of these people’s illegal business activities, not because the CPV felt threatened by their power.” 

Vuong’s brother, Pham Nhat Vu, was arrested in early 2019 for bribery over the long-running scandal involving the state-run Mobifone telecommunications’ attempted purchase of a private telecom firm.  

“However, companies are expected to support the Party’s rule and stay away from certain corrupt business practices that may threaten the economic security of the country or go against the Party’s policies,” said Hiep. 

“After all, Party officials and local tycoons need each other to achieve their respective goals: regime survival and capital expansion.”

Analysts reckon Vietnam’s private sector and its tycoons – unlike in China – are still too weak politically to pose any threat to the Communist Party’s rule. 

“The private sector in Vietnam is far weaker and dependent on the state than its counterpart in China,” said Tuong Vu, a professor of political science at the University of Oregon.

“There are only a few tycoons and they are all in real estate and services. They not only built their wealth on personal and political connections but also heavily depend on such connections to survive and continue,” Vu added. “Their businesses may dominate a sector but are easily replaced with no impact on the economy.” 

Some 96% of Vietnam’s privately-owned firms are small-or-medium sized enterprises and the majority aren’t even “medium” sized, according to a Ministry of Finance estimate from 2020. 

Vu also noted that none of Vietnam’s tycoons have the global connections that Chinese tycoons have developed over the years. 

So far, Communist Party of Vietnam cadres and private sector giants have achieved a relative quid pro quo balance, analysts say.

The Party needs the private sector in order for the economy to grow, from which it derives much of its legitimacy with the public, and the private sector needs the Party for regulatory favors, concessions and market access.

Ahead of the 2021 National Congress, the Party’s quinquennial event where key policies and appointments are decided, it was announced that the Party wants private companies to account for more than half of the economy by 2025, up from around 42% in late 2020. 

More specifically, it said it wanted around 1.5 million private companies to make up 55% of GDP by 2025, compared with the 700,000 firms that represented 42% in 2020. 

“Private companies have become crucial for the economy, with their increasing contribution to GDP,” Ha Thi Nga, a delegate at the Party congress and chairwoman of Vietnam’s Women Union, said during the Congress. “So it’s significant and absolutely right that the Party makes supporting the private sector one of its goals.”

“Moving forward, instead of containing the private sector, the CPV is likely to further nurture it to support Vietnam’s economic growth and to reduce the risk of becoming over-reliant on the foreign-invested sector,” said Hiep. 

When General Secretary Trong visited a VinGroup factory in 2017, which was developing the conglomerate’s new automobile line, he lauded it as a “pioneer in building a national car brand.” 

Nguyen Xuan Phuc, now state president, was explicit about the importance of VinGroup when he visited a factory in 2019 when he was serving as prime minister.

After piloting VinFast’s new electric scooter in early 2019, he told the public to “give priority to using Vietnamese goods,” an indication that the regime sees these giants as indispensable to the plan to reduce the country’s dependence on foreign firms and investment. 

Phuc’s government in 2018 placed restrictions on foreign car imports, a move that cosseted VinFast. 

In return for this treatment, Vietnam’s tycoons are expected to be subservient and reticent. Unlike some other tycoons, Vuong isn’t known for conspicuous consumption.

In a rare 2019 interview he gave to Tuoi Tre, a state-run newspaper, he said that the core principles of his company were “patriotism, discipline and civility.”

However, that quid pro quo relationship might not always exist as it does today. As economies develop and mature, there is added popular pressure for reform. 

Corruption and nepotism can be conducive to economic progress in the early stages of development, including in the transition from communism to capitalism, but it becomes more problematic as private companies grow and wealth divides become more apparent.

Because Vietnam lacks genuine rule of law or well-defined private property rights, the potential for conflicts is rising as perceptions grow that not all businesses are required to play by the same rules.

According to Nguyen Khac Giang, an analyst at the Victoria University of Wellington, official crackdowns on Vietnam’s private sector and tycoons are still far from those seen in China but there are signs they are accelerating.

“Solving corruption in the private sector and fostering economic growth will be a dilemma for the Party because its development model, in a way, depends on corruption, whether as petty corruption, embezzlement or ‘access money.’”

“Corruption is the fuel to run the system,” Giang said. “The ultimate result will be selective punishment for some businessmen as showcases, while the others, particularly some too big to fail companies, will be left untouched,” Giang predicted.  

By David Hutt – Asia Times – July 29, 2022