CHAPTER I

INTRODUCTION

I.1 Background

Vietnam’s development performance since the early 1990s has been one of the
strongest in the world, following the introduction of its doi moi (renovation) economic reform
program in 1986. The core of Vietnam’s economic strategy has been rapid integration into
the world economy, with a diversified portfolio of exports and the attraction of direct foreign
investment. This open approach has been combined with successful domestic agricultural
growth and a strong, continued role for state-owned enterprises while encouraging growth of
the private sector. Following an ‘East Asian’ model, Vietnam has opened its domestic market
only slowly while focusing on the export growth.

Vietnam's success is reflected in evidently improved social indicators. The country

has already met the Millennium Development Goals to wipe out the extreme poverty and
hunger and to improve maternal health. Vietnam cut child mortality rates by half between
1990 and 2007 and is expected to achieve universal primary school enrolment soon.

The United Nations Development Program ranks Vietnam 113 out of 169 countries on
its 2010 human development index.1 The World Bank defines the country as a low income
economy, with an average per capita income of US$790 (2007).2 This low ranking is
explained in part by some sectors of the population (particularly the rural poor and ethnic
minorities) not equally benefiting from economic growth. Further, both the International
Monetary Fund and the World Bank have identified Vietnam as highly vulnerable to the
effects of the global downturn due primarily to trade, investment, and remittance shocks.

For this reason, Vietnam has established a development program, so called Vietnam’s
Socio-Economic Development Strategy, which empower Vietnam to build their nation off the
poverty or any other problems in the domestic area. In this paper, i would like to discuss the
Vietnam’s development, a rapid one, as a contestation for China which is emerging power in
world economy.

I.2 Research Question

1
Accessed from www.un.org/News/Press/docs/2008/sc9416.doc.htm, 22 Desember 2010
2
Accessed from http://econ.worldbank.org/WBSITE/EXTERNAL/.html, 23 December 2010
 Having explained the introduction above, here i would like to focus on the research
question and it would be “How Vietnam manage the development into a great economic
growth? : a contestation for China’s emerging power”

I.3 Concept and Theory

I.3.1 Development3
The word ‘development’ is open to a great deal of controversy. To many, it can
appear patronising, especially when distinguishing between countries that are developed and
those that are described as ‘developing’ or ‘undeveloped’. One way that development is often
measured is in terms of changes in gross national product (GNP) per capita and comparative
GNPs between countries. A country is said to be developing if its GNP is increasing. If the
gap between its GNP and those of the so-called ‘developed’ countries is decreasing, the
country is said to be moving from being a less developed country to being a highly developed
country. On these terms, the newly industrialising countries (NICs) such as Singapore, South
Korea, Taiwan, and Hong Kong are sometimes said to be rapidly reaching, and in some cases
surpassing, Western standards of development.

I.3.2 Economic Reform4

Liberal economic reforms propounded the idea of a laissez-faire economy which

originated from the theory of liberalism which was formulated by Adam Smith, The father of
economies. Liberal economic reforms laid stress on free market economics without
intervention from the government. Liberal economic reforms were based on the concept of
economic liberalism which originated in the eighteenth century and was associated with the
Laissez-faire political ideology. The origin of liberal economic reforms can be attributed to
the theory of liberal economics which was formulated in the eighteenth century by Adam
Smith who is regarded as the father of economics.

Liberal economic reforms advocate free market economics encouraging free trade
with least government interference. These reforms emphasize the role of markets in an
economy and seek to reduce the interference of government regulations. Liberal economic
reforms follow the doctrine of liberalist economic thoughts that open market economic

3
Martin Griffiths dan Terry O’Callaghan, International Relations: The Key Concepts, (New York: Routledge,
2002), hlm. 197-198
4
Accessed from http://finance.mapsofworld.com/economy-reform/liberal.html, 26 December 2010
conditions are more conductive to growth than under government intervention through
specific regulations.

Liberal economic reforms had significant impacts on the role of the government in an
economy. The government was expected not to play any role in wealth creation and
distribution under liberal economic reforms. The government's role in creating or breaking
monopolies, granting special privileges, and setting up barriers to foreign trade was also
argued against by the liberal economic reforms.

CHAPTER II
 ANALYSIS

II.1 A Short History of Vietnam’s Economic Growth

Vietnam has made significant development progress over the past decade and has
increasingly integrated into the world economy. The government has strong ownership of its
development agenda and consistently demonstrates an effective use of development
assistance. Vietnam has reduced poverty at an unprecedented rate: the number of Vietnamese
living on less than US$1.25/day fell from 64 percent in 1992 to 21.5 percent in 2006.5 The
gross domestic product grew by an estimated 6 percent in 2008 despite the global economic
recession.
Vietnam's economy has transformed from a planned economy based on a agriculture
to a socialist market economy. Essentially, the reform included plans which were directed at
developing a multi-sectoral market; reforming the legal, banking, fiscal and monetary
systems; controlling inflation and the national budgets; and creating a conducive environment
to attract investments, especially foreign direct investment. The reform has proven to be quite
a success.
Growth in total industrial output has exceeded 10% per year since 1991. Hence,
industry and construction together constitute around 30% in 1995, up from 23% in 1990.
Similarly, the services sector has grown to 43% of total GDP, up from 39% in 1990. This
indicates that Vietnam's economic structure is shifting from agriculture towards industry and
services.
As explain before, Vietnam is not only manging their economy into one of the most
major rapid economy in the ASEAN, even world economy, but also vietnam has made a
reform on socio-political sphere. Although Vietnam's political system is dominated by a
single party, there are some signs of greater government transparency and accountability,
such as more participatory approaches and better public financial management. Reforms are
most evident in the workings of the National Assembly. Significant concerns remain
regarding rights to freedom of expression and dealing with democracy.

Vietnam's anticipated transition to a lower-middle income economy is bringing about

new and more complex challenges, for example, the need for deeper and broader legal and
regulatory reforms for continued equitable growth. Such reforms are also necessary for
Vietnam to promote well-functioning markets and a health investment climate. Currently,

5
Loc. Cit, http://econ.worldbank.org/WBSITE/EXTERNAL/.html
Vietnam's ongoing decentralization of public finance accounts and service delivery is placing
greater demands on provincial-level governments, as they are relatively weaker. A focus on
agriculture and rural development is needed to address sustained poverty reduction.

II.2 Vietnam – China Economic Relationship and Comparation

Vietnam's strong economic growth and social transformation from the mid-1990s to
the mid-2000s helped it to both raise most of its population out of poverty and attract the eyes
of the international community. Its rapid growth during liberalization of its state-controlled
economy, its revolutionary history and its Communist Party government have led some to
compare Vietnam's growth experience to that of China, which has also experienced a major
turnaround since it began economic reforms in 1979. However, though the two may seem
ever more similar in the news headlines, their growth strategies are quite different.

China and Vietnam still necessarily pursue very different paths due to their basic
difference in scale. Vietnam has a population of only 88.6 million people, with about 28
percent of the population in urban areas; China's population of 1.34 billion (over 15 times
Vietnam) is over 43% urbanized, meaning over 575 million people are working in industry,
as businesspeople, as service workers, and in other trades that produce goods and services
that can be exported.6

China also has a much longer history of heavy industry and railroads, both dating
back to the late 19th century. Vietnam, on the other hand, had to develop much of its industry
and infrastructure with Soviet loans in the late 1970s, and thus was behind and still is far
behind. It still lags behind much of East and Southeast Asia in terms of railway lines,
deepwater ports, and even freeways, whereas China is a leader in these areas.

Unlike Vietnam, China's economic strength and political power allows it to take a
more aggressive approach to trade and regional issues. One telling example is to compare the
positions of China and Vietnam in the ASEAN-China Free Trade Area (ACFTA), which was
formally created on January 1 and posits China's status as a dominant force in trade relations
with Southeast Asian nations. Though it has given ASEAN nations easier access to Chinese
markets, the creation of the Free Trade Area has enabled Chinese goods, which China
produces at a competitive advantage due to the scale of its industrial output and its cheap

6
Accessed from http://www.suite101.com/content/vietnam, 23 December 2010
labor, to flood Southeast Asian markets and often crowd out more expensive textiles, food,
and other light goods from Vietnam and the other ASEAN countries.

Another example is China's role as a resource extractor, rather than resource provider,
in the region. In return for access to Indonesian oil, Philippine metals, Malaysian rubber, and
the aforementioned Vietnamese bauxite, China provides its ASEAN neighbors with
manufactured goods. The problem with this trade is that it can reproduce one of the problems
of past imperialism, which is the resource extractor tends to receive most of the benefit, as it
has the least to lose in trade with the provider.

In my opinion, Vietnam is currently in no position to replicate these aggressive

development strategies. It lacks the political power in Asia to become a dominant force in the
region, at least for the time being. Instead, it is looking for strategic partnerships with China
and other nations to give it the technology and equipment it needs to develop its industries.
However, Vietnam holds a lot of potential for the future. Vietnam's highly educated
population (at over 90% literacy) will likely make it competitive as it transitions out of being
a low-income country to become a competitive force in the region.

II.3 Future Vietnam’s Development Strategy and The Contestation to China

We see that Vietnam has developed into one of the major economic player in
ASEAN, and for that reason, here i would like to discuss the economic strategy of Vietnam in
the making of rapid economic growth. The strategy introduces the theme proposed to guide
the nation’s governance over the next ten years, that is, ‘rapid and sustainable development.’
It then summarizes the achievements and shortcomings of Vietnam’s socio-economic
development since 2001. That account concludes that Vietnam’s achievements have not been
commensurate with potential and serves as the base for its key judgment: that to meet the
requirements of the next ten years, the economy must be restructured to emphasize ‘deep
growth’ and knowledge-intensive (rather than labor and resource-intensive) development.7

Vietnam’s competitiveness and ability to continue rapid growth will depend on the
quality of its products rather than quantity of output, the development strategy argues. Stable
macroeconomic management and a stable political climate are essential. Vietnam’s highly
productive private sector must be encouraged to develop supporting industries and protected

7
Accessed from http://www.amchamvietnam.com/3882, 26 December 2010
from red tape and unfair competition by state enterprises. The state enterprises are deemed to
play a necessary role in the economy but to be in dire need of market discipline.

The Government’s strategy proposes also to maintain poverty reduction and socialist
democracy as drivers for a policy of rapid and sustainable development, to emphasize
improvement of teaching in the universities and vocational schools, and to mobilize a
systematic attack on corruption. Finally, there is strong emphasis that economic growth must
no longer come at the expense of the nation’s environmental integrity.

By the end of year 2010, Vietnam will establish a new Socio-Economic Development
Strategy (SEDS), which period is 2011 – 2020. The new SEDS will ideally build on the
achievements of the 2001 – 2010 Socio-Economic Development Strategy in accelerating
industrialization and modernization following the socialist orientation, and laying the
foundations for Vietnam to become a middle income country by 2020. It will also merge with
the specific components of Vietnam’s Millennium Development Goals (MDGs), at least in
part, which have a deadline of 2015.

At the same time, the 2011 – 2020 SEDS will reflect the changing realities of
Vietnam’s engagement with the goal economy and the country’s new phase of development.
It is instructive to review the goals set for SEDS 2011 – 2010, so as to ascertain the different
context for SEDS 2011 – 2020, which were: modernization and industrialization, which
clearly necessary for Vietnam to shift from an agriculture, based economy to a manufacturing
one, with a GDP growth trajectory that would help the country address serious hunger and
poverty, and graduate out of the ranks of the least developed countries.
In addition, the basic economic structure of the economy had completed a radical
change; while the service and trade sector continued to account for around 40% of GDP, the
agricultural sector (including forestry and fisheries) had gone from representing roughly 40%
to 20% of GDP, and conversely the industrial sector (including construction) had gone from
representing roughly 20% to 40% of GDP.8
Quoting Prime Minister Nguyen Tan Dung, “Vietnam’s development strategy is
towards sustainability, including three mainstays: economic development accompanied with
ensuring social equity and environmental protection. This commitment to the goal of
sustainable development is reflected in the Ministry of Planning and Investment’s use of

8
Accessed from http://hubpages.com/hub/8923783, 24 December 2010
“three pillar’s of development to evaluate the results of implementing the Five-Year Socio –
Economic Development Plan for 2006 – 2010.9

The push for industrialization has also resulted in an increasing amount of agricultural
land being acquired for industrial purposes, leaving a growing number of farmers without
land and without the skills necessary to enter the labor force. Modernization has primarily
focused on urban areas, leaving the countryside with insufficient infrastructure and
opportunities, which further pushes young people to migrate to the cities to find employment.
The rural-urban gap is widening, as is that between the rich and the poor.

These are common challenges many developing countries face, but this next phase of
development is critical, as Vietnam has moved beyond the poverty alleviation agenda and is
increasingly focused on how to compete successfully in the global market; reach the rank of
middle income countries; and establish itself as an active participant in regional and
international affairs.

Government coordination is critical, as complex issues require the involvement of

many agencies, but Vietnam largely remains locked in a vertical, top down organization
structure. State-society relations will need to evolve as the role of the State shifts from that of
control to one of facilitation, and the broader engagement and expertise of society is needed
to generate knowledge and innovations, appropriate for the challenges and opportunities of
the Twenty-first Century. In my opinion, Vietnamese economy will continue to be affected
by the world economy (especially China) which is under fast, complicated and unpredictable
changes, while the world economic recession though has been checked but remains below the
growth rates of previous years.

CHAPTER III

9
Loc. Cit
 CONCLUSION

Vietnam has witnessed major success after economic reform and the establishment of
Socio-Economic Development Strategy which length is 5 years up to 10 years. As a growing
economic power in ASEAN, Vietnam is being contested by China’s economic as one of the
most emerging power in the world economy. Unlikely, Vietnam doesn’t want to be a “new
China”, even they are sharing roots and background together as a “economic reformer” and a
socialist country.

Still, up to now, Vietnam is standing behind China’s back due to the power and
leverage in ASEAN. Regardless of the economic reform, China has an influence on Vietnam,
which means that Vietnam is beaten up in some of the aspects of economy. Because China
and Vietnam is differ on development containing scale and power, and Vietnam still can’t
play a major role due to the dominant role of China in ASEAN.

What Vietnam can do about this issue, is a breakthrough to its development strategy.
Vietnam has to complete socialist-oriented market economy institution, rapidly developing
human resources and building infrastructure comprehensively in order to foster the economic
growth.
 Department of International Relations

Faculty of Social and Political Science

Universitas Indonesia

Managing Vietnam’s Development into a Great Economic Growth: A Contestation for

China’s Emerging Power

This paper is intended to fulfill the needs of ASEAN and East Asian Dynamics

by:

Yanuar Priambodo

0806322981

2010