RARELY has winning looked less appealing. Widely hailed in the past few years as a big beneficiary of US-China economic rivalry, Vietnam is stumbling. Its recent performance is so anemic that China’s much-derided recovery looks relatively vigorous. Hanoi can’t escape the gravity of slowing global growth — combined with some homegrown setbacks.
That the nation’s travails have received minimal attention says a lot about how narratives can get stuck. When tensions between Beijing and Washington escalated during Donald Trump’s presidency, Vietnam became the toast of think tanks and investment banks. It had proximity to China. The country was busy enmeshing itself in supply chains that dotted Southeast Asia, especially in electronics. Its Communist rulers had developed cordial ties with the US. Real estate was booming. Things that might go wrong were glossed over if ever considered at all.
Disappointment with China’s expansion is pervasive; almost every piece of data is scrutinized for flaws. This has tended to crowd out the deterioration in Vietnam. Export figures for May were spun as positive because the decline was limited to single digits; they had tumbled 21.3% in January from a year earlier. Gross domestic product rose just 3.3% in the first quarter, making China’s 4.5% clip appear muscular. Business confidence is waning. The property market looks more bust than boom. Power blackouts in northern areas are hurting big manufacturers. (Like much of Southeast Asia, Vietnam is suffering from a heatwave that’s straining power grids.)
The central bank cut interest rates last month, one of the few monetary authorities anywhere to do so. There may be more to come: Prime Minister Pham Minh Chinh said last week that with inflation under control, officials need to turn their attention to stoking growth.
Vietnam’s downturn has been aggravated by an anti-graft drive that’s seen hundreds of party members prosecuted. Ministers, agency chiefs, and company executives have been detained. Thousands of property projects in the biggest cities have been suspended. Rooting out malfeasance is critically important, but comes at a cost. This isn’t just about factories and skyscrapers. The crackdown is getting so granular that even karaoke risks grinding to a halt. Nguyen Khac Giang, a visiting fellow at Singapore’s ISEAS-Yusof Ishak Institute, wrote in a commentary on May 18:
“The fear of being drawn into anti-corruption investigations has caused many officials to hesitate in improving projects or licenses, leading to serious business disruptions. For example, after a fatal karaoke bar fire occurred in Binh Duong Province, the Ministry of Public Security introduced tougher fire safety regulations for all businesses. The authorities required all karaoke bars to close until they met the new standards, but many owners complained that even after complying with the regulations, local fire police departments failed to approve the applications, driving them to bankruptcy. In Ho Chi Minh City, only two out of 449 registered karaoke and bar businesses have had their applications approved, with 53 establishments still operating. The rest have gone bankrupt or had their businesses suspended.”
The ferocity of the campaign brings to mind Chinese President Xi Jinping’s push to eradicate bribery. Vietnam’s leaders have warned that rampant corruption risks eroding the Communist Party’s legitimacy and described the crackdown as a “blazing furnace.” Vietnam figures it has more to gain economically over the long run by tackling this vexing issue now. It’s hardly the only nation to have a graft problem: Former Malaysian prime minister Najib Razak is behind bars for crimes linked to the 1MDB scandal. Misuse of funds is seen as a huge issue in Indonesia.
But the paralysis and climate of fear risks reminding investors of the similarities with China, despite Hanoi’s efforts to present itself as an alternative — and the willingness of the West to buy into that story. Like China, Vietnam is a one-party state. Its currency, the dong, is tightly managed. Big sectors of the economy are off limits to foreign investors. Decision-making isn’t particularly transparent.
In the haste to identify a new China or the jazziest China+1, it was easy to overlook just how much Vietnam had in common with its giant northern neighbor. Did the nation oversell itself, or did people see what they wanted to see in their eagerness to attach grand stories to the shifting relationships of the Trump era?
Ironically, by intertwining itself with supply chains, Vietnam may have become more vulnerable to the troughs, as well as gaining from the peaks. China’s rebound isn’t doing much for the rest of Asia, and export powerhouses like South Korea are being dented by the travails of the tech industry. Little wonder that Vietnam is also feeling the pinch, given its evolution into one of the most trade-dependent economies in the world since opening under the so-called “doi moi” reforms in the 1980s.
The country has come back to earth. Time for perceptions to follow. Nobody ever said winning came without pain.
BLOOMBERG OPINION
