This series of profiles of foreign nations is part of the Country Studies Program, formerly the Army Area Handbook Program. The profiles offer brief, summarized information on a country’s historical background, geography, society, economy, transportation and telecommunications, government and politics, and national security. Dervied from The Library of Congress.
Formal Name: Socialist Republic of Vietnam (Cong Hoa Xa Hoi Chu Nghia Viet Nam).
Short Form: Vietnam.
Term for Citizen(s): Vietnamese.
Major Cities: With 5.6 million people, Ho Chi Minh City (formerly Saigon) is the most populous city. Hanoi has a population of 3 million. Other major cities are Danang, Haiphong, and Can Tho.
Independence: Vietnam declared independence from Japan and France on September 2, 1945. However, Vietnam remained under French control until the communist Viet Minh defeated French forces at Dien Bien Phu in 1954.
Public Holidays: Official holidays are New Year’s (January 1), Tet or Lunar New Year (movable date in January or February), Liberation Day to commemorate the fall of Saigon (April 30), Labor Day (May 1), and Independence Day to commemorate Japan’s withdrawal following its defeat in World War II (September 2).
Flag: Red, with a large yellow five-pointed star in the center.
Origins: The Vietnamese trace the origins of their culture and nation to the fertile plains of the Red River Delta in northern Vietnam. After centuries of developing a civilization and economy based on the cultivation of irrigated rice, in the tenth century the Vietnamese began expanding southward in search of new rice lands. Until the mid-nineteenth century, the Vietnamese gradually moved down the narrow coastal plain of the Indochina Peninsula, ultimately extending their reach into the broad Mekong River Delta. Vietnamese history is the story of the struggle to develop a sense of nationhood throughout this narrow, 1,500-kilometer stretch of land and to maintain it against internal and external pressures.
China was the chief source of Vietnam's foreign ideas and the earliest threat to its national sovereignty. As a result of a millennium of Chinese control beginning in about 111 BC, the Vietnamese assimilated Chinese influence in the areas of administration, law, education, literature, language, and culture. Even during the following nine centuries of Vietnamese independence, lasting from the late tenth century until the second half of the nineteenth century, the Chinese exerted considerable cultural, if not political, influence, particularly on the elite.
Colonial Period, Independence, and War: After 900 years of independence and following a period of disunity and rebellion, the French colonial era began during the 1858–83 period, when the French seized control of the nation, dividing it into three parts: the north (Tonkin), the center (Annam), and the south (Cochinchina). In 1861 France occupied Saigon, and by 1883 it had taken control of all of Vietnam as well as Laos and Cambodia. French colonial rule was, for the most part, politically repressive and economically exploitative. The Japanese occupied Vietnam during World War II but allowed the French to remain and exert some influence. At the war’s end in 1945, Ho Chi Minh, leader of the communist Viet Minh organization, declared Vietnam’s independence in a speech that invoked the U.S. Declaration of Independence and the French Revolution’s Declaration of the Rights of Man and of the Citizen. However, the French quickly reasserted the control they had ceded to the Japanese, and the First Indochina War (1946–54) was underway. French control ended on May 7, 1954, when Vietnamese forces defeated the French at Dien Bien Phu. The 1954 Geneva Conference left Vietnam a divided nation, with Ho Chi Minh's communist government ruling the North from Hanoi and Ngo Dinh Diem's regime, supported by the United States, ruling the South from Saigon (later Ho Chi Minh City).
As a result of the Second Indochina War (1954–75), Viet Cong—communist forces in South Vietnam—and regular People’s Army of Vietnam (PAVN) forces from the North unified Vietnam under communist rule. In this conflict, the insurgents—with logistical support from China and the Soviet Union—ultimately defeated the Army of the Republic of Vietnam, which sought to maintain South Vietnamese independence with the support of the U.S. military, whose troop strength peaked at 540,000 during the communist-led Tet Offensive in 1968. The North did not abide by the terms of the 1973 Paris Agreement, which officially settled the war by calling for free elections in the South and peaceful reunification. Two years after the withdrawal of the last U.S. forces in 1973, Saigon, the capital of South Vietnam, fell to the communists, and on April 30, 1975, the South Vietnamese army surrendered. In 1976 the government of united Vietnam renamed Saigon as Ho Chi Minh City, in honor of the wartime communist leader who died in September 1969. The Vietnamese estimate that they lost nearly 3 million lives and suffered more than 4 million injuries during the U.S. involvement in the war.
Unified Vietnam: In the post-1975 period, it was immediately apparent that the popularity and effectiveness of Vietnamese Communist Party (VCP) policies did not necessarily extend to the party’s peacetime nation-building plans. Having unified North and South politically, the VCP still had to integrate them socially and economically. In this task, VCP policy makers were confronted with the South’s resistance to communist transformation, as well as traditional animosities arising from cultural and historical differences between North and South. More than a million Southerners, including about 560,000 “boat people,” fled the country soon after the communist takeover, fearing persecution and seizure of their land and businesses. About a million Vietnamese were relocated to previously uncultivated land called “new economic zones” for reeducation.
The harsh postwar crackdown on remnants of capitalism in the South led to the collapse of the economy during the 1980s. With the economy in shambles, Vietnam’s government altered its course and adopted consensus policies that bridged the divergent views of pragmatists and communist traditionalists. In 1986 Nguyen Van Linh, who was elevated to VCP general secretary the following year, launched a campaign for political and economic renewal (Doi Moi). His policies were characterized by political and economic experimentation that was similar to simultaneous reform agendas undertaken in China and the Soviet Union. Reflecting the spirit of political compromise, Vietnam phased out its reeducation effort. The government also stopped promoting agricultural and industrial cooperatives. Farmers were permitted to till private plots alongside state-owned land, and in 1990 the government passed a law encouraging the establishment of private businesses.
Compounding economic difficulties were new military challenges. In the late 1970s, two countries—Cambodia and China—posed threats to Vietnam. Clashes between Vietnamese and Cambodian communists on their common border began almost immediately after Vietnam’s reunification in 1975. To neutralize the threat, Vietnam invaded Cambodia in December 1978 and overran Phnom Penh, the Cambodian capital, driving out the incumbent Khmer Rouge communist regime and initiating a prolonged military occupation of the country.
In February and March 1979, China retaliated against Vietnam's incursion into Cambodia by launching a limited invasion of Vietnam, but the Chinese foray was quickly rebuffed. Relations between the two countries had been deteriorating for some time. Territorial disagreements along the border and in the South China Sea that had remained dormant during the Second Indochina War were revived at the war's end, and a postwar campaign engineered by Hanoi to limit the role of Vietnam's ethnic Chinese community in domestic commerce elicited a strong protest from Beijing. China also was displeased with Vietnam because of its improving relationship with the Soviet Union.
During its incursion into Cambodia in 1978–89, Vietnam’s international isolation extended to relations with the United States. The United States, in addition to citing Vietnam's minimal cooperation in accounting for Americans who were missing in action (MIAs) as an obstacle to normal relations, barred normal ties as long as Vietnamese troops occupied Cambodia. Washington also continued to enforce the trade embargo imposed on Hanoi at the conclusion of the war in 1975. Soon after the Paris Agreement on Cambodia resolved the conflict in October 1991, however, Vietnam established or reestablished diplomatic and economic relations with most of Western Europe, China, and other Asian countries. Vietnam normalized relations with China in 1991 and with Japan in 1993. In February 1994, the United States lifted its economic embargo against Vietnam, and in June 1995, the United States and Vietnam normalized relations. In June 2005, a high-level Vietnamese delegation, led by Prime Minister Phan Van Khai, visited the United States and met with their U.S. counterparts, including President George W. Bush. This was the first such visit in 30 years. Relations with China took another step forward after the two countries settled their long-standing border dispute in 1999. China is now a major trading partner, and Vietnam models its economic policies after China’s.
As of late 2005, a three-person collective leadership was responsible for governing Vietnam. This triumvirate consisted of the VCP general secretary (Nong Duc Manh, April 2001– ), the prime minister (Phan Van Khai, September 1997– ), and the president (Tran Duc Luong, September 1997– ). General Secretary Manh headed up not only the VCP but also the 15-
Vietnam agreed to a common fishing zone in the Gulf of Tonkin. Vietnam claims an exclusive economic zone (EEZ) of 200 nautical miles, the approximate beginning of the continental shelf.
Topography: Vietnam is a country of tropical lowlands, hills, and densely forested highlands, with level land covering no more than 20 percent of the area. The country is divided into the highlands and the Red River Delta in the north, and the Giai Truong Son (Central mountains, or the Chaîne Annamitique, sometimes referred to simply as the Chaîne), the coastal lowlands, and the Mekong River Delta in the south. The highest point in Vietnam is Fan Si Pan, at 3,143 meters above sea level, in the northwest.
Principal Rivers: A relatively dense network of rivers traverses Vietnam. The principal rivers are as follows: in the north, the Red and Thai Binh; in the center, the Ca, Ma, Han, Thach Han, and Thu Bon; and in the south, the Mekong and Dong Nai.
Climate: Vietnam’s climate is tropical and monsoonal; humidity averages 84 percent throughout the year. Annual rainfall ranges from 1,200 to 3,000 millimeters, and annual temperatures vary between 5°C and 37°C.
Natural Resources: Vietnam’s main natural resources consist of coal, copper, crude oil, gold, iron, manganese, silver, and zinc.
Land Use: In 2003 Vietnam’s land use was distributed as follows: 21 percent, arable; 28 percent, forest and woodland; and 51 percent, other.
Environmental Factors: The National Environmental Agency, a branch of the Ministry of Science, Technology, and Environment, is responsible for environmental protection. At the provincial level, the Departments of Science, Technology, and the Environment bear responsibility. Non-governmental organizations, particularly the Institute of Ecological Economics, also play a role. Urbanization, industrialization, and intensive farming are having a negative impact on Vietnam’s environment. These factors have led to air pollution, water pollution, and noise pollution, particularly in urban and industrial centers like Ho Chi Minh City and Hanoi. The most serious problem is waste treatment. Land use pressures have led to significant environmental problems, including severe deforestation, soil erosion, sedimentation of rivers, flooding in the deltas, declining fish yields, and pollution of the coastal and marine environment. The use of Agent Orange by the U.S. military in the Second Indochina War (1954–75) has had a lingering effect on Vietnam in the form of persistent environmental contamination that has increased the incidence of various diseases and birth defects.
Time Zone: Seven hours ahead of Greenwich Mean Time.
Population: In 2004 Vietnam’s population was 82.2 million, and it was growing at a rate of about 1.2 percent per year. The average population density was 246 people per square kilometer, one of the highest levels in the world. The highest concentration of people was in the Red River Delta, in the northeast where Hanoi is located, and the lowest concentration was in the northwest. The population, which traditionally has been primarily rural, has become increasingly urbanized since 1986, when the Doi Moi economic renewal program began to boost income and employment opportunities in the cities. In 2004 about 26 percent of Vietnam’s population was urban and 75 percent rural, down from 85 percent in the early 1980s. Vietnam’s net migration rate was estimated at –0.45 migrant(s) per 1,000 population in 2004. Consistent with the trend toward urbanization, urban areas, such as Ho Chi Minh City, Hanoi, Da Nang, and the Central Highlands, have attracted the most migrants. In addition, a steady stream of migrants continues to move from the North to the South. As of 2002, the two largest groups of refugees were Vietnamese and ethnic Chinese returning to Vietnam from Cambodia and the Montagnards from Vietnam’s Central Highlands seeking asylum in Cambodia.
Demography: In 2004 Vietnam’s age distribution was estimated as follows: 0 to 14 years of age, 29.4 percent; 15 to 64, 65 percent; and 65 and older, 5.6 percent. This age distribution signals slower population growth than in the past. According to 2005 estimates, Vietnam’s birthrate was 17.07 births per 1,000 people, and the fertility rate was 1.94 children born per woman. The infant mortality rate was 25.95 per 1,000 live births, and the death rate was 6.2 per 1,000. Also according to 2005 estimates, life expectancy was 70.61 years for the total population, consisting of 67.82 years for men and 73.6 years for women.
Ethnic Groups: Vietnamese are the predominant ethnic group, constituting 85 to 90 percent of the population. Chinese account for 3 percent of the population. Other ethnic groups are the Hmong, Thai, Khmer, Cham, and Montagnards, an indigenous group living in the Central Highlands.
Languages: Vietnamese is the official language of Vietnam. The Vietnamese have adopted a Romanized script introduced by the French during the colonial period. English is increasingly accepted as a second language. Some French language influence persists. Other languages used are Chinese, Khmer, and mountain area dialects.
Religion: With 7.6 million followers, Buddhism is the most popular religion. The second most popular religion is Roman Catholicism, with 6 million adherents. Other faiths, with the number of followers indicated, are Cao Dai (2 million), Hoa Hao (1 million), Protestantism (500,000), and Islam (50,000).
Education and Literacy: In 2003 Vietnam’s literacy rate was 94 percent, including 95.8 percent for men and 92.3 percent for women. However, educational attainment is less impressive. Although five years of primary school education are considered compulsory and 92 percent of eligible children were enrolled in primary school in 2000, only two-thirds completed the fifth grade. The cost of tuition, books, and uniforms and the need to supplement family income are the two main reasons for dropping out. A huge disparity exists in primary school enrollment between the cities and rural parts of Vietnam. In some rural areas, only 10 to 15 percent of the children progress beyond third grade, whereas almost 96 percent of pupils in Ho Chi Minh City complete fifth grade. In 2000 enrollment in secondary school was only 62.5 percent, much lower than in primary school. One of the government’s goals is to expand access to secondary education.
Health: The overall quality of healthcare is regarded as good, as reflected by 2005 estimates of life expectancy (70.61 years) and infant mortality (25.95 per 1,000 live births). However, malnutrition is still common in the provinces, and the life expectancy and infant mortality rates are stagnating. In 2001 government spending on health care corresponded to just 0.9 percent of gross domestic product (GDP). Government subsidies covered only about 20 percent of health care expenses, with the remaining 80 percent coming out of individuals’ own pockets.
In 1954 the government in the North established a public health system that reached down to the hamlet level. After reunification in 1976, this system was extended to the South. Beginning in the late 1980s, the quality of health care began to decline as a result of budgetary constraints, a shift of responsibility to the provinces, and the introduction of charges. Inadequate funding has led to delays in planned upgrades to water supply and sewerage systems. As a result, almost half the population has no access to clean water, a deficiency that promotes such infectious diseases as malaria, dengue fever, typhoid, and cholera. Inadequate funding also has contributed to a shortage of nurses, midwives, and hospital beds. In 2000 Vietnam had only 250,000 hospital beds, or 14.8 beds per 10,000 people, a very low ratio among Asian nations, according to the World Bank.
Vietnam has made progress in combating malaria, for which the mortality rate declined sharply, to about 5 percent of the rate in the early 1990s, after the country introduced antimalarial drugs and treatment. However, tuberculosis (TB) cases are on the rise, with 57 deaths per day reported in May 2004. With an intensified vaccination program, better hygiene, and foreign assistance, Vietnam hopes to reduce sharply the number of TB cases and annual new TB infections.
As of September 2005, Vietnam had diagnosed 101,291 human immunodeficiency virus (HIV) cases, of which 16,528 developed acquired immune deficiency syndrome (AIDS) and 9,554 died. But the actual number of HIV-positive individuals is estimated to be much higher. An average of 40–50 new infections are reported every day in Vietnam. Vietnam hopes to contain the HIV infection rate at the current official rate of 0.35 percent, which is about average worldwide, by limiting the disease as much as possible to sex workers and intravenous drug users. However, if the current trend continues, the number of infected persons could reach 1 million by 2010. One of the impediments to containing HIV/AIDS is that the victims face discrimination and stigmatization that are more severe than almost anywhere else in the world, according to a United Nations official. In June 2004, the Bush Administration announced that Vietnam would be one of 15 nations to receive funding as part of a US$15 billion global AIDS plan.
Welfare: Vietnam’s welfare efforts target victims of the Second Indochina War (1954–75), such as individuals disabled in combat or by toxic chemicals and the families of fallen combatants. About 5 million Vietnamese, corresponding to more than 6 percent of the population, are disabled. The Ministry of Labor, War Invalids, and Social Affairs administers welfare. Vietnam has legislated a social insurance system with provisions for old age, disability, and death; sickness and maternity; and work injury. Coverage is reported to be mandatory for state employees, non-state enterprises with more than 10 employees, and foreign-invested enterprises. Special programs are said to exist for government civil servants and armed forces personnel.
Overview: Beginning in the 1980s, dire economic conditions forced the government to relax restrictions on private enterprise and sharply cut back on labor camp prisoners, many of them entrepreneurs. In 1986 Vietnam launched a political and economic renewal campaign (Doi Moi) that introduced reforms intended to facilitate the transition from a centralized economy to a “socialist-oriented market economy.” Doi Moi combined government planning with free-market incentives. The program abolished agricultural collectives, removed price controls on agricultural goods, and enabled farmers to sell their goods in the marketplace. It encouraged the establishment of private businesses and foreign investment, including foreign-owned enterprises.
By the late 1990s, the success of the business and agricultural reforms ushered in under Doi Moi was evident. More than 30,000 private businesses had been created, and the economy was growing at an annual rate of more than 7 percent. From the early 1990s to 2005, poverty declined from about 50 percent to 29 percent of the population. However, progress varied geographically, with most prosperity concentrated in urban areas, particularly in and around Ho Chi Minh City. In general, rural areas also made progress, as rural households living in poverty declined from 66 percent of the total in 1993 to 36 percent in 2002. By contrast, concentrations of poverty remained in certain rural areas, particularly the northwest, north-central coast, and central highlands.
In 2001 the Vietnamese Communist Party (VCP) approved a 10-year economic plan that enhanced the role of the private sector while reaffirming the primacy of the state. In 2003 the private sector accounted for more than one-quarter of all industrial output, and the private sector’s contribution was expanding more rapidly than the public sector’s (18.7 percent versus 12.4 percent growth from 2002 to 2003).
Despite these signs of progress, the World Economic Forum’s 2005 Global Competitiveness Report, which reflects the subjective judgments of the business community, ranked Vietnam eighty-first in growth competitiveness in the world (down from sixtieth place in 2003) and eightieth in business competitiveness (down from fiftieth place in 2003), well behind its model China, which ranked forty-ninth and fifty-seventh in these respective categories. Vietnam’s sharp deterioration in the rankings from 2003 to 2005 was attributable in part to negative perceptions of the effectiveness of government institutions. Official corruption is endemic despite efforts to curb it. Vietnam also lags behind China in terms of property rights, the efficient regulation of markets, and labor and financial market reforms. State-owned banks that are poorly managed and suffer from non-performing loans still dominate the financial sector.
Although Vietnam’s economy, which continues to expand at an annual rate in excess of 7 percent, is one of the fastest growing in the world, the economy is growing from an extremely low base, reflecting the crippling effect of the Second Indochina War (1954–75) and repressive economic measures introduced in its aftermath. Whether rapid economic growth is sustainable is open to debate. The government may not be able to follow through with plans to scale back trade restrictions and reform state-owned enterprises. Reducing trade restrictions and improving transparency are keys to gaining full membership in the World Trade Organization (WTO), as hoped by mid-2006. The government plans to reform the state-owned sector by partially privatizing thousands of state-owned enterprises, including all five state-owned commercial banks.
Gross Domestic Product (GDP): In 2004 Vietnam’s GDP was US$45.2 billion. Per capita gross national income was US$550. However, based on purchasing power parity (buying power for a basket of goods without regard for market exchange rates), Vietnam’s per capita GDP was approximately US$2,700. In 2004 the contributions to GDP by sector were as follows: agriculture, 21.8 percent; industry, 40.1 percent; and services, 38.2 percent. Reflecting Vietnam’s hybrid economy, industry ownership was mixed, as indicated by percentage of output, as follows: state-owned, 40 percent and declining; privately owned, 25 percent, but employing four times as many workers as the state-owned sector; and foreign-owned, 35 percent.
Government Budget: In November 2003, Vietnam’s National Assembly approved a total state budget of about US$12 billion for 2004, corresponding to about 26.5 percent of estimated gross domestic product (GDP). The government’s budget deficit, currently targeted not to exceed 5 percent, is rising but remains under control in the view of independent observers.
Inflation: In 2004 inflation was 9.5 percent, higher than the 3.4 percent rate measured in 2000 but down significantly from 160 percent in 1988. The long-term decline reflects the beneficial effect of fiscal and monetary reforms aimed at stabilizing the economy.
Agriculture, Forestry, and Fishing: In 2004 agriculture and forestry accounted for 21.8 percent of gross domestic product (GDP), and during 1994–2004 the sector grew at an annual rate of 4.1 percent. However, agricultural employment was much higher than agriculture’s share of GDP; in 2005 some 60 percent of the employed labor force was engaged in agriculture, forestry, and fishing. Agricultural products accounted for 30 percent of exports in 2005. The relaxation of the state monopoly on rice exports transformed the country into the world’s second or third largest rice exporter. Other cash crops are coffee, cotton, peanuts, rubber, sugarcane, and tea.
In 2003 Vietnam produced an estimated 30.7 million cubic meters of roundwood. Production of sawnwood was a more modest 2,950 cubic meters. In 1992, in response to dwindling forests, Vietnam imposed a ban on the export of logs and raw timber. In 1997 the ban was extended to all timber products except wooden artifacts. During the 1990s, Vietnam began to reclaim land for forests with a tree-planting program.
Vietnam’s fishing industry, which has abundant resources given the country’s long coastline and extensive network of rivers and lakes, has experienced moderate growth overall. In 2003 the total catch was about 2.6 million tons. However, seafood exports expanded fourfold from 1990 to 2002 to more than US$2 billion, driven in part by shrimp farms in the South and “catfish,” which are a different species from their American counterpart but are marketed in the United States under the same name. By concentrating on the U.S. market for the sale of vast quantities of shrimp and catfish, Vietnam triggered antidumping complaints by the United States, which imposed tariffs in the case of catfish and is considering doing the same for shrimp. In 2005 the seafood industry began to focus on domestic demand to compensate for declining exports.
Mining and Minerals: In 2003 mining and quarrying accounted for a 9.4 percent share of gross domestic product (GDP); the sector employed 0.7 percent of the workforce. Petroleum and coal are the main mineral exports. Also mined are antimony, bauxite, chromium, gold, iron, natural phosphates, tin, and zinc.
Industry and Manufacturing: Although industry contributed 40.1 percent of gross domestic product (GDP) in 2004, it employed only 12.9 percent of the workforce. In 2000, 22.4 percent of industrial production was attributable to non-state activities. During 1994–2004, industrial GDP grew at an average annual rate of 10.3 percent. Manufacturing contributed 20.3 percent of GDP in 2004, while employing 10.2 percent of the workforce. During 1994–2004, manufacturing GDP grew at an average annual rate of 11.2 percent. The top manufacturing sectors—food processing, cigarettes and tobacco, textiles, chemicals, and electrical goods—experienced rapid growth. Almost a third of manufacturing and retail activity is concentrated in Ho Chi Minh City.
Energy: Petroleum is the main source of commercial energy, followed by coal, which contributes about 25 percent of the country’s energy (excluding biomass). Vietnam’s oil reserves are in the range of 270–500 million tons. The World Bank cites the lower bound of the range. Oil production rose rapidly to 403,300 barrels per day in 2004, but output is believed to have peaked and is expected to decline gradually. Vietnam’s anthracite coal reserves are estimated at 3.7 billion tons. Coal production was almost 19 million tons in 2003, compared with 9.6 million tons in 1999. Vietnam’s potential natural gas reserves are 1.3 trillion cubic meters. In 2002 Vietnam brought ashore 2.26 billion cubic meters of natural gas. Hydroelectric power is another source of energy. In 2004 Vietnam began to build a nuclear power plant with Russian assistance.
Crude oil is Vietnam’s leading export, totaling 17 million tons in 2002; in 2004 crude oil represented 22 percent of all export earnings. Petroleum exports are in the form of crude petroleum because Vietnam has a very limited refining capacity. Vietnam’s only operational refinery, a facility at Cat Hai near Ho Chi Minh City, has a capacity of only 800 barrels per day. Several consortia have abandoned commitments to finance a 130,000-barrel-per-day facility at Dung Quat in central Vietnam. Refined petroleum accounted for 10.2 percent of total imports in 2002.
Services: In 2004 services accounted for 38.2 percent of gross domestic product (GDP). During 1994–2004, GDP attributable to the services sector grew at an average annual rate of 6.0 percent.
Banking and Finance: Vietnam’s first stock exchange, known as the Ho Chi Minh City Securities Trading Center, was established in July 2000. By the spring of 2005, the number of companies listed on the exchange had reached 28, representing a total market capitalization of only US$270 million. In March 2005, Vietnam opened an over-the-counter exchange, known as the Hanoi Securities Trading Center. The purpose of the second exchange is to expedite the process of equitization (partial privatization) of state-owned enterprises. Although these exchanges are still very small, officials have set the goal of expanding their combined market capitalization to 10 percent of gross domestic product by 2010 and gradually phasing out restrictions on foreign ownership of shares. In September 2005, Vietnam’s prime minister announced that the limit on foreign share ownership would rise from 30 percent to 49 percent.
Vietnam’s banks suffer from low public confidence, regulatory and managerial weakness, high levels of non-performing loans (NPL), non-compliance with the Basel capital standards, and the absence of international auditing. Since 1992 Vietnam’s banking system has consisted of a combination of state-owned, joint-stock, joint-venture, and foreign banks, but the state-owned commercial banks predominate, and they suffer from high levels of NPL, most of them to state-owned enterprises. Consequently, in September 2005 Vietnam decided to equitize all five state-owned banks—a change from previous plans to equitize only two of them. In addition, Vietnam plans to boost the transparency of its financial system by establishing a credit-rating agency and performance standards for joint-stock banks. Large foreign banks are balancing their strong interest in serving multinationals in Vietnam and frustration with continuing restrictions on their activities. Although Vietnam is a cash-based society, 300 to 400 automated teller machines (ATMs) have been installed, and about 350,000 debit cards are in circulation.
Tourism: In 2004 Vietnam received 2.9 million international arrivals, up from 2.4 million the previous year. The annual increase represented a strong rebound from a slight decline in 2003 attributable to the severe acute respiratory syndrome (SARS) epidemic in Asia. From 1999 to 2004, tourism rose by 63 percent. Most of the visitors in 2004—27 percent—came from China, with 8–9 percent each coming from the United States, Japan, and South Korea. The Vietnam National Administration of Tourism is following a long-term plan to diversify the tourism industry, which brings needed foreign exchange into the country.
Labor: In 2004 the unemployment rate in urban areas was 5.6 percent, down from 5.8 percent in 2003 and 6.0 percent in 2002.
Foreign Economic Relations: Vietnam is an observer to the World Trade Organization (WTO), but it aspires to full membership as early as mid-2006. Joining the WTO is vitally important because membership will free Vietnam from textile quotas enacted worldwide as part of the Multifiber Arrangement (MFA) of 1974. The MFA placed restrictions on the import by industrialized countries of textiles from developing countries. For China and other WTO members, however, textile quotas under the MFA expired at the end of 2004, as agreed in the Uruguay Round of trade negotiations in 1994. Partially as a result, Vietnam’s textile exports stagnated in 2005.
Economic relations with the United States are improving but are not without challenges, even beyond Vietnam’s aspirations to join the WTO. Although the United States and Vietnam reached a landmark bilateral agreement in December 2001 that boosted Vietnam’s exports to the United States, disagreements over textile and catfish exports are hindering full implementation of the agreement. Further disrupting U.S.-Vietnamese economic relations are efforts in Congress to link non-humanitarian aid to Vietnam’s human rights record. Barriers to trade and intellectual property are also within the purview of bilateral discussions.
Given neighboring China’s rapid economic ascendancy, Vietnam’s economic relationship with China is of utmost importance. Following the resolution of most territorial disputes, trade with China is growing rapidly, and in 2004 Vietnam imported more products from China than from any other nation. In November 2004, the Association of Southeast Asian Nations (ASEAN), of which Vietnam is a member, and China announced plans to establish the world’s largest free-trade area by 2010.
Imports: In 2004 Vietnam’s merchandise imports were valued at US$31.5 billion, and growing rapidly. Vietnam’s principal imports were machinery (17.5 percent), refined petroleum (11.5 percent), steel (8.3 percent), material for the textile industry (7.2 percent), and cloth (6.0 percent). The main origins of Vietnam’s imports were China (13.9 percent), Taiwan (11.6 percent), Singapore (11.3 percent), Japan (11.1 percent), South Korea (10.4 percent), Thailand (5.8 percent), and Malaysia (3.8 percent).
Exports: In 2004 Vietnam’s merchandise exports were valued at US$26.5 billion, and, much like imports, were growing rapidly. Vietnam’s principal exports were crude oil (22.1 percent), textiles and garments (17.1 percent), footwear (10.5 percent), fisheries products (9.4 percent), and electronics (4.1 percent). The main destinations of Vietnam’s exports were the United States (18.8 percent), Japan (13.2 percent), China (10.3 percent), Australia (6.9 percent), Singapore (5.2 percent), Germany (4.0 percent), and the United Kingdom (3.8 percent).
Trade Balance: In 2004 Vietnam ran a merchandise trade deficit of US$5 billion, or 16 percent of imports.
Balance of Payments: The current account balance was negative US$1.4 billion in 2004. Vietnam last registered a slightly positive current account balance in 2001.
External Debt: In 2004 external debt amounted to US$16.6 billion, or 37 percent of gross domestic product (GDP).
Foreign Investment: From 1988 to December 2004, cumulative foreign direct investment (FDI) commitments totaled US$46 billion. By December 2004, about 58 percent had been dispersed. About half of FDI has been directed at the two major cities (and environs) of Ho Chi Minh City and Hanoi. In 2003 new foreign direct investment commitments were US$1.5 billion. The largest sector by far for licensed FDI is industry and construction. Other sectors attracting FDI are oil and gas, fisheries, construction, agriculture and forestry, transportation/communications, and hotels and tourism. During the period 2006–10, Vietnam hopes to receive US$18 billion of FDI to support a targeted growth rate in excess of 7 percent. Despite rising investments, foreign investors still regard Vietnam as a risky destination, as confirmed by a recent survey by the Japan External Trade Organization of Japanese companies operating in Vietnam. Many of these companies complained about high costs for utilities, office rentals, and skilled labor. Official corruption and bureaucracy, the lack of transparent regulations, and the failure to enforce investor rights are additional issues impairing investment, according to the U.S. State Department. Vietnam tied with several nations for 102nd place in Transparency International’s 2004 Corruption Perceptions Index.
Foreign Aid: The World Bank’s assistance program for Vietnam has three objectives: to support Vietnam’s transition to a market economy, to enhance equitable and sustainable development, and to promote good governance. From 1993 through 2004, Vietnam received pledges of US$29 billion of official development assistance (ODA), of which about US$14 billion, or 49 percent, actually has been disbursed. In 2004 international donors pledged ODA of US$2.25 billion, of which US$1.65 billion actually was disbursed. Three donors accounted for 80 percent of disbursements in 2004: Japan, the World Bank, and the Asian Development Bank. During the period 2006–10, Vietnam hopes to receive US$14 billion–US$15 billion of ODA.
Currency and Exchange Rate: As of December 2005, one U.S. dollar was equivalent to about 15,913 Vietnamese dong (D). The relationship between the U.S. dollar and Vietnamese dong is important because the dong, although not freely convertible, is loosely pegged to the dollar through an arrangement known as a “crawling peg.” This mechanism allows the dollar-dong exchange rate to adjust gradually to changing market conditions.
Fiscal Year: Calendar year.
TRANSPORTATION AND TELECOMMUNICATIONS
Transportation Overview: Vietnam’s transportation system is in need of modernization and expansion. Ports are operating at only one-third of capacity. Roads are in generally poor condition, and the underdeveloped railroad system carries less freight than the inland waterways. Motorcycles are more popular than buses. In an effort to improve bus service, Hanoi plans to invite private companies to bid for operating rights for six municipal bus routes.
Roads: Vietnam’s roads extend over 210,000 kilometers, implying a network density twice as high as Thailand’s and Malaysia’s. However, the condition of the roads is generally poor; only 13.5 percent of the roads are considered to be in good condition. Only 29 percent of the roads are tarred, and road access is cut off to more than 10 percent of villages for at least one month per year because of monsoons. In 2005 the construction of the 1,690-kilometer Ho Chi Minh Highway, which eventually will link Hanoi and Ho Chi Minh City, was still underway. The project, which is expected to cost US$500 million, is the largest transportation project since the end of the Second Indochina War. Despite government efforts to promote the use of buses, motorcycles remain the preferred mode of local transport. There is one motorcycle for every seven people. Poorer citizens rely on bicycles, while only the affluent can afford cars.
Railroads: Vietnam has six single-track railroad routes with a total length of 3,260 kilometers. The network’s density is only about one-third the average for low-income countries. The longest railroad line measures 1,730 kilometers from Hanoi to Ho Chi Minh City and requires 32 hours to traverse on the Reunification Express. Of the nation’s inventory of rolling stock, 25 percent is not operational. Twenty-five percent of the nation’s operational rolling stock is more than 30 years old. Freight traffic picked up in 2000 and 2001 following five years of decline. Vietnam needs more than US$400 million between 2004 and 2009 to modernize its railroads. The government plans to build two subway lines in Ho Chi Minh City by 2007. Project-related costs are estimated at US$800 million.
Ports: The principal ports in Vietnam, listed from north to south, are Haiphong, Quang Ninh, Danang, Qui Nhon, Ho Chi Minh City, and Can Tho. Altogether, Vietnam has seven international ports and five additional ports that specialize in transporting oil and coal. The freight volume is about 14 million tons annually, compared with only 4.5 million tons in 1993. However, total traffic is only about one-third of capacity. Vietnamese ships carry only about 20 percent of the country’s international trade, although plans exist to expand the merchant fleet substantially.
Inland Waterways: Vietnam’s inland waterways, primarily the Mekong River and Red River systems, carry more freight than the railroads, and the volume of freight is rising slowly. According to the World Bank, transportation productivity via the inland waterways is 40 percent below the system’s potential, assuming proper maintenance, navigation aids, and dredging.
Civil Aviation and Airports: Vietnam operates 17 major civil airports, including three international gateways: Noi Bai serving Hanoi, Danang serving Danang City, and Tan Son Nhat serving Ho Chi Minh City. Tan Son Nhat is the largest, handling 75 percent of international passenger traffic. Vietnam Airlines, the national airline, has a fleet of 30 aircraft that link Vietnam with 19 foreign cities. In 2004 Vietnam Airlines had 5 million passengers, up 25 percent from the prior year, and management expects the number of passengers to reach 12 million by 2010. In November 2004, Vietnam Airlines announced that it would purchase 10 Airbus A310–200 aircraft and continue negotiations for four Boeing 7E7 “Dreamliner” aircraft. Vietnam Airlines’ goal is to expand its fleet to 73 aircraft by 2010. Beginning in 2006, Vietnam Airlines will cooperate with American Airlines in international flights under a codeshare agreement. Vietnam Airlines’ code will apply to American Airlines flights from the United States to Vietnam, Japan, and Europe. American Airlines’ code will apply to Vietnam Airlines flights from Vietnam to Japan and Europe.
Pipelines: In April 1995, a 125-kilometer natural gas pipeline connecting Bach Ho with a power plant near Vung Tau went into operation. With the subsequent addition of compressors, the volume pumped rose to more than 1 billion cubic meters per year. In 2005 a 399-kilometer underwater pipeline, the world’s longest, began to carry natural gas onshore from the Nam Con Son basin. The pipeline’s anticipated capacity is 2 billion cubic meters per year, while the basin has an estimated 59 billion cubic meters of natural gas reserves.
Telecommunications: The International Telecommunication Union rates Vietnam’s telecommunications market the second fastest growing in the world after China. With rapid telecommunications growth leading to 4.9 million landline telephones and 3.4 million mobile telephones as of mid-2004, Vietnam’s telephone penetration rate is still only 10 percent. As of mid-2004, Vietnam had 5.1 million Internet users, corresponding to 6 percent penetration. In 2000 Vietnam had about 600,000 personal computers, or 7.35 for 1,000 people. In 2003 Vietnam had 8.2 million radios, or 100.45 per 1,000 people. There were 65 AM radio stations, 7 FM stations, and 29 shortwave stations. Also in 2003, Vietnam had 3.6 million televisions, or 43.73 per 1,000 people. Television broadcast stations numbered at least seven in 1998.