How To Lam Can Unleash Vietnam’s Private Sector

In Vietnam’s one-party state, the private sector has historically played second fiddle to state-owned enterprises (SOEs). However, in a significant ideological shift, the Communist Party of Vietnam’s (CPV) General Secretary, To Lam, has dramatically upended this orthodoxy by proclaiming private enterprise as the economy’s “most important force”, relegating SOEs from their once-dominant role to merely a “guiding force”.

These are not mere rhetorical flourishes. Over recent months, To Lam has instructed his government to enact tangible measures to foster private sector growth and develop “national champions” who can compete globally. Despite considerable obstacles, this policy pivot could ignite a new growth engine for Vietnam, particularly vital following the recent Trump administration’s unpredictable tariff policy.

Since the Doi Moi (renovation) reforms of the 1980s, Vietnam’s private enterprises have proven themselves the most dynamic component of the economy, contributing over 51 per cent of GDP, 30 per cent of the state budget, and employing 82 per cent of Vietnam’s workforce (or 42.1 million people).

Yet, they operate under systemic disadvantages in an essentially three-tier system. At the top, SOEs enjoy preferential access to land, capital, and government contracts. Foreign investors occupy the middle tier with tax holidays and streamlined regulations. They pay an average 12.3 per cent corporate income tax, compared to the standard 20 per cent for domestic enterprises. Samsung, Vietnam’s largest foreign investor, pays just 6 per cent. Domestic private companies languish at the bottom, hobbled by byzantine regulations and limited financing.

The consequences of this hierarchy are plain to see. Private businesses have either retreated to the informal economy — with over 5 million household businesses refusing to register formally — or concentrated on rent-seeking sectors like property development and resource extraction. Few have developed sophisticated manufacturing capabilities or meaningful positions in global value chains except a handful of names such as Vingroup, FPT, and Sovico (which owns Vietnam’s biggest private airline Vietjet). Instead, many remain primarily junior partners to either foreign multinationals or SOEs. To Lam recently lamented that Vietnam was positioned at the bottom of the value chain, exchanging “cheap labour and environmental pollution” for limited economic benefits while being vulnerable to external shocks.

Vietnam’s export-led growth model — driven primarily by the foreign direct investment (FDI) sector — was thrown into sharp relief on 2 April 2025 when US President Donald Trump imposed a 46 per cent tariff on the country. Such measures could slash up to three percentage points from its GDP growth target of 8 per cent for the year. Though tariff implementation was delayed by 90 days, the threat remains acute for an economy where exports nearly equal the entire GDP. Had Vietnam developed a stronger private sector with a more balanced economy, its vulnerability to such actions would have been significantly reduced.

To Lam aims to address this vulnerability through three main pillars. First, he has set an ambitious target to double the number of private enterprises to two million by 2030, emphasising administrative reforms to foster a more hospitable business environment. Second, he aims to cultivate private sector “national champions”, analogous to South Korea’s chaebol. Third, he seeks to allocate significant megaprojects, traditionally reserved for SOEs and foreign partners, directly to private companies.  

The timing of this policy shift reflects To Lam’s recognition that Vietnam’s existing economic model is reaching its limits. Although concerns about rapidly increasing labour costs and an ageing population at risk of “growing old before getting rich” were identified as early as 2016, and geopolitical risks intensified from 2019 onwards — highlighted notably when President Trump branded Vietnam the “single worst trade abuser” — these vulnerabilities have now reached a critical tipping point. With diminishing geopolitical dividends and heightened trade uncertainties, the recent tariff threat underscores the urgency for Vietnam to recalibrate its growth strategy towards a more resilient, domestically driven private sector. 

The pivot towards the private sector could alarm conservative party members, who worry that it will undermine Vietnam’s socialist identity.

However, turning rhetoric into reality demands far-reaching reforms. First, Vietnam must overhaul its legal framework to ensure fair competition among state, private, and foreign enterprises, dismantling hidden subsidies and preferential treatments. Financial reform is equally crucial, ensuring capital is allocated by merit rather than political connections, potentially through fostering independent banking and transparent capital markets. Tax policies should incentivise innovation and formalisation rather than protect entrenched interests. Investment in vocational training is also essential to address pervasive skills shortages in the private sector.

To Lam’s vision will face significant headwinds from multiple directions. The pivot towards the private sector could alarm conservative party members, who worry that it will undermine Vietnam’s socialist identity. This could be politically risky for To Lam, particularly as the CPV’s 14th Congress is approaching. Entrenched SOEs and state-controlled banks will inevitably resist reforms that threaten their privileged status. Additionally, efforts could inadvertently spawn politically connected conglomerates that prioritise rent-seeking over genuine innovation, echoing the failed state-led chaebol experiment of two decades ago.  

Compounding these obstacles is Vietnam’s “short-termist” policy environment, where officials are primarily assessed on their ability to rapidly attract investment for immediate results, rather than on structural reforms that gradually foster a healthy environment for the domestic private sector. This tendency incentivises continued dependence on FDI over the more complex task of building domestic champions.

Vietnam’s new administrative structure, following the government’s dramatic “Streamlining Revolution”, also requires time to adjust before enacting policies to foster private sector development. External pressures further complicate matters, particularly the looming threat of American tariffs, which would divert government attention towards crisis management rather than long-term economic restructuring.

To Lam’s emphasis on private sector empowerment represents Vietnam’s boldest economic redirection in decades. As the great power competition intensifies and global trade frictions multiply, Vietnam’s resilience increasingly depends on domestic innovation and internal demand rather than foreign investment and exports. The government’s capacity to enact meaningful reforms while navigating ideological resistance and external pressures will determine whether its private sector can finally unleash its full potential. Success would not only help Vietnam escape the middle-income trap but also insulate its economy in an era of deglobalisation and geopolitical uncertainty.

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