Index trend
Previous Quarterly Editions
Expropriation Risk: 56 56 56 56 ►Political Violence Risk:48 48 48 48 ►Terrorism Risk:13 11 11 11 ►Exchange Transfer and Trade Sanction Risk: 63 63 63 55 ▼Sovereign Default Risk:47 47 47 47 ►
Overall Risk Temperature: 51 (Medium -2) TREND ▼
Special topic: Relationship with the 'global rules-based order'
Vietnam has been a significant net beneficiary of the global rules-based order in recent decades, notwithstanding the ideological stance of the ruling Vietnam Communist Party (VCP). Key milestones include Vietnam gaining membership in the Association of Southeast Asian Nations and normalizing relations with Washington, both in 1995, and joining the World Trade Organization (WTO) in 2007. Vietnam joined the Comprehensive and Progressive Agreement for Trans-Pacific Partnership in 2019, signed a free trade agreement with the European Union (EU) in 2020 and joined the Regional Comprehensive Economic Partnership in 2022.
As a beneficiary of the global rules-based order, Vietnam has broadly supported this order. Hanoi has been successful in leveraging this for domestic economic gain. This can be evidenced by rising inflows of foreign direct investment and external trade flows. Investment inflows in particular have helped Vietnam graduate up through increasingly higher value-add chains in recent decades. The country is now seen as a competitive rival to countries such as China, India and Malaysia, as a platform for export-oriented manufacturing across various sectors.
Vietnam received plaudits in 2023 for its “bamboo diplomacy” in handling the competing interests of former socialist bloc allies, such as China and to a lesser extent Russia, with burgeoning links to the EU and U.S. In 2023, relations between Hanoi and Washington were elevated to a “comprehensive strategic partnership,” and Vietnam was the only country last year to play host to the presidents of China and the U.S. — this, despite a recent trend that has seen the fortunes of Western-trained technocrats in Hanoi being overtaken by their more hard-line and pro-China peers, with growing emphasis placed on “internal security” and strict allegiance to the VCP.
The economic impact of a deterioration in the global rules-based order on Vietnam would almost certainly be deleterious. While the recent trend toward greater regionalization has probably had a neutral effect on Vietnam’s economic fortunes, there has been some concern that a protracted shift toward “friend-shoring” or “near-shoring” could have a negative impact on investment and trade activity for Vietnam.
In this context, Hanoi would have little to gain from seeking to undermine the global rules-based order, even if the country’s leadership has become increasingly illiberal in its mode of operations in recent years, as reflected in persecution of any form of political dissent, and the increasingly tight control imposed over civil society organizations, including non-governmental organizations and donor programs.
It remains to be seen whether the disconnect between the government’s increasingly authoritarian political stance domestically and its economic embrace of the West internationally can continue to be reconciled in Vietnam.
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Expropriation risk regarding physical assets is relatively low, notwithstanding the lack of an independent judiciary and several weak institutions that make for a less-than-benign operating environment for foreign business; however, Vietnam’s reliance on foreign direct investment to power its economic advancement means it has little incentive to gain a reputation for elevated expropriation risk.
There are concerns about Vietnam’s 2018 cyber security law and August 2022 clarificatory decree on implementation, especially over data localization requirements and how much the state is monitoring, in addition to long-held concerns around the general inadequacy of intellectual property protections.
The political violence risk is low. The communist government has no tolerance for anything resembling open dissent, within its own ranks and the population. Vietnam’s internal security apparatus is highly effective, including online monitoring.
The most likely catalyst for public violence, such as riots, would be if China made further provocative moves over its competing territorial claims in the South China Sea and Vietnam’s people felt their government responded weakly; however, Vietnam’s security apparatus would react speedily and firmly to any violence.
Vietnam is at very low risk of terrorism. The security apparatus has been successful in thwarting virtually all potential acts of organized terrorism and most forms of violent protest. While anti-government sentiment exists among some of the Vietnamese diaspora, their ability to conduct terrorist acts inside Vietnam is virtually nil.
One notable exception, that arguably proves the rule, was the June 2023 attack in two towns in Dak Lak province, resulting in nine people’s deaths, including four police. Over 70 individuals were arrested. In early March 2024, Hanoi put two separatist Montagnard groups, both U.S.-based, on its list of terrorist organizations, for having allegedly been behind the attacks.
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The Vietnamese dong is not freely convertible and has held relatively steady against the U.S. dollar in recent years. In December 2019, Washington placed Hanoi on a watch list for potential currency manipulation, but in April 2021, it announced Vietnam had been removed from the list and therefore was no longer subject to the threat of economic sanctions. Hanoi had previously taken this threat of U.S. sanctions seriously and explored ways to absorb more U.S. exports, hoping to reduce its trade surplus with the U.S.
Nonetheless, this surplus continues to rise, largely as growing numbers of export-oriented manufacturers relocate from China to Vietnam, hoping to side-step China-U.S. trade tensions. In early 2022, U.S. officials held a virtual meeting with Vietnamese officials, raising U.S. concerns over allegedly illegal practices in timber, agriculture and digital trade. While some retaliation by the U.S. or others for perceived trade violations is conceivable, these have yet to transpire and are unlikely to be large or long-lasting, given the scale of foreign investment in Vietnam and its burgeoning role as an important trading partner.
In 2023, Hanoi increased its lobbying efforts in Washington to be granted “market economy” status. Vietnam is currently classified in Washington as a “non-market economy” along with 12 other countries, including China and Russia. In October 2023, the U.S. Commerce Department said it would review Vietnam’s status; a decision is expected by mid-July 2024. The EU got rid of this market/non-market classification some years ago, preferring instead to distinguish between WTO members and non-members instead.
In September 2023, the International Monetary Fund (IMF) released the findings of its latest “Article IV” negotiations with Vietnam, broadly giving the country a good bill of health. The IMF estimates Vietnam’s foreign exchange reserves to be around US$100 billion — about three to four months of import cover. The government is not a major borrower on the international financial markets, and the IMF estimates Vietnam’s total public and publicly guaranteed debt at a manageable 35% of gross domestic product.
Most of Vietnam’s external debt is long term and owed to multilateral development institutions at relatively “soft” terms. A significant proportion of publicly guaranteed debt stems from state-owned enterprises, many of which are loss-making whether due to operational inefficiencies or being the subject of government price controls.
The domestic debt situation is more fragile, due largely to defaults in the property sector and commercial banks’ high exposure to the property market.
In early September 2022, Moody’s revised its rating for Vietnam from Ba3 (with positive outlook) to Ba2 (with stable outlook). This followed Standard and Poor’s May decision to change Vietnam’s credit rating from BB (with positive outlook) to BB+ (with stable outlook). In December 2023, Fitch upgraded Vietnam from BB to BB+ with a stable outlook.
