Analysis-Investors welcome Vietnam's reforms, yet To Lam's economic goals may prove difficult to achieve

Vietnam's Ambitious Economic Overhaul Faces Skepticism

By Francesco Guarascio

Bold Reform Plans Under To Lam

Both local and international investors have responded positively to To Lam’s push for economic transformation in Vietnam. However, experts remain doubtful about his ambitious vision of achieving double-digit growth through a system some have dubbed “market Leninism.”

Impressive Growth Amid Challenges

Since To Lam’s reappointment as Communist Party chief in mid-2024, Vietnam has outpaced many of its Southeast Asian neighbors in economic expansion. The country’s stock market surged by nearly 40% last year, outperforming most emerging markets, even as it faced obstacles such as U.S. tariffs and frequent natural disasters.

Shifting Economic Strategy

To sustain this momentum, Lam has outlined a “new growth model” driven by innovation and the digital economy, with major Vietnamese conglomerates at the forefront. This marks a shift away from the traditional reliance on low-cost labor and export-led growth, which has attracted manufacturing giants like Samsung, and Nike over the years.

Growth Targets: Lofty Goals vs. Realistic Forecasts

• Lam has set a target of at least 10% annual growth for the remainder of the decade, aiming to move the economy beyond its dependence on cheap labor.
• Last year, Vietnam’s growth rate accelerated to 8%, up from 7% in 2024.
• Adam Samdin of Oxford Economics believes Vietnam is poised to outperform the region in the next five years, but cautions that 10% growth is likely unattainable. Achieving such rates would require higher wages to boost domestic consumption, which could undermine Vietnam’s cost advantage for foreign investors.
• The World Bank projects Vietnam will continue to grow faster than its neighbors, but expects growth to slow to 6.3% this year and 6.7% by 2027, partly due to lingering effects from U.S. tariffs imposed during President Donald Trump’s administration.

Geopolitical and Structural Hurdles

Vietnam’s government has not yet commented on Lam’s economic ambitions. According to Tran Thi Mong Tuyen of the Pacific Forum, Lam’s policy shift represents a fundamental change rather than a minor adjustment. However, she notes that ongoing U.S.-China tensions complicate the strategy, as Vietnam seeks closer ties with Washington and other major investors while remaining reliant on China for raw materials and components.

Despite record-high exports to the U.S.—Vietnam’s largest trading partner—last year, American tariffs may soon take a toll. The U.S. administration has also criticized Vietnam for its dependence on Chinese inputs, suggesting the country acts as a transit point for Chinese goods destined for the U.S.

Crackdown on Trade Practices

Vietnamese authorities have pledged to address illegal transshipment activities to comply with international trade rules.

State Control Remains Central

Lam’s approach to growth combines deep cuts to government jobs, rapid credit expansion, significant investment in infrastructure, and an expanded role for private enterprise. This strategy has raised concerns about financial stability, inefficiency, and favoritism.

Supporters liken Lam’s reforms to the Doi Moi liberalization of the late 1980s, which sparked decades of economic progress. Nevertheless, analysts and diplomats note that the state will continue to play a dominant role, supporting key domestic firms with subsidies and setting their targets—effectively nudging large private companies toward a quasi-state-owned status.

Alexander Vuving of the Asia-Pacific Center for Security Studies describes the model as “market Leninism,” where the party-state relies on the private sector to drive growth, but certain conglomerates benefit disproportionately due to their close government ties.

Administrative Reforms and Their Impact

Shortly after taking office, Lam implemented the most sweeping administrative reforms in decades, eliminating layers of government at both local and central levels. Nearly 150,000 officials lost their positions, and the power structure was overhauled—drawing comparisons to reforms by Argentina’s President Javier Milei.

While these changes were intended to reduce bureaucracy, simplify regulations, and speed up decision-making, they have sometimes led to delays as government agencies adapt.

Mixed Reactions from Investors

Many foreign investors and diplomats have praised Vietnam’s reform efforts and political stability. However, Laura Schwartz of Verisk Maplecroft points out that Vietnam still imposes heavier regulatory requirements than its regional competitors. She adds that recent declines in key indicators suggest that reforms have not yet delivered the regulatory clarity businesses are seeking.

Reporting by Francesco Guarascio; Additional reporting by Gregor Hunter; Edited by William Mallard