Despite speculation that Vietnam will be "another China" due to their similar development histories and policy strategies, several factors keep them apart.
Vietnam's strong economic growth and social transformation from the mid-1990s to the mid-2000s helped it to both raise most of its population out of poverty and attract the eyes of the international community. Its rapid growth during liberalization of its state-controlled economy, its revolutionary history and its Communist Party government have led some to compare Vietnam's growth experience to that of China, which has also experienced a major turnaround since it began economic reforms in 1979. However, though the two may seem ever more similar in the news headlines, their growth strategies are quite different.
Like China, Vietnam Has Witnessed Major Success After Economic Reforms
Vietnam has come a long way in a remarkably short amount of time. In 1993, 58 percent of the population of Vietnam lived in poverty, according to
World Bank figures. Vietnam has reduced the poverty level from that level to 14% in 2008, and is now considered by the World Bank to be a “middle-income country,” with an average per capita income above US$1000. Vietnam's economy has shifted from a heavily state-owned and state-run system to a more diverse and freer one, where both
international and Vietnamese businesses are booming.
This is largely the result of Vietnam's
doi moi (or “renovation”) reforms that opened its markets to foreign investment beginning in 1986. The reforms involved a more careful application of government spending, which reduced inflation rates from over 400 percent in 1990 to less than 10 percent by just 1992. Reduction of inefficiency in the state sector, the growth of manufacturing and the influx of foreign business led to a GDP growth rate of 8 percent for 1992, heralding the beginning of a new age of growth for Vietnam. This past decade, Vietnam has grown an average of 7.2 percent every year,
according to Vietnam expert and economist James Riedal (3-7).
Doi moi and its positive impact in Vietnam have resembled China's own economic reforms, begun a almost a decade earlier in 1979. Largely closed to the outside world during the Mao years from 1949-1976, China began an aggressively export-led path of development that was highly successful. State-owned businesses that could not compete with new private industries were cut out, and with investment from neighboring Hong Kong and Taiwan as well as from the United States, the Chinese economy lumbered out of its longtime sleep to become a global competitor.
China and Vietnam Differ on Development Due to Scale and Power
China and Vietnam still necessarily pursue very different paths due to their basic difference in scale.
Vietnam has a population of only 88.6 million people, with about 28 percent of the population in urban areas; China's population of 1.34 billion (over 15 times Vietnam) is
over 43% urbanized, meaning over 575 million people are working in industry, as businesspeople, as service workers, and in other trades that produce goods and services that can be exported.
China also has a much longer history of heavy industry and railroads, both dating back to the late 19th century. Vietnam, on the other hand, had to develop much of its industry and infrastructure with Soviet loans in the late 1970s, and thus was behind and still is far behind.
It still lags behind much of East and Southeast Asia in terms of railway lines, deepwater ports, and even freeways, whereas China is a leader in these areas.
China Dominant in ASEAN and Resource Management; Vietnam Still Struggling
Unlike Vietnam, China's economic strength and political power allows it to take a more aggressive approach to trade and regional issues. One telling example is to compare the positions of China and Vietnam in the ASEAN-China Free Trade Area (ACFTA), which was formally created on January 1 and
cements China's status as a dominant force in trade relations with Southeast Asian nations. Though it has given ASEAN nations easier access to Chinese markets, the creation of the Free Trade Area has enabled Chinese goods, which China produces at a competitive advantage due to the scale of its industrial output and its cheap labor, to flood Southeast Asian markets and often crowd out more expensive textiles, food, and other light goods from Vietnam and the other ASEAN countries.
Another example is China's role as a resource extractor, rather than resource provider, in the region. In return for access to Indonesian oil, Philippine metals, Malaysian rubber, and the aforementioned Vietnamese bauxite, China provides its ASEAN neighbors with manufactured goods. The problem with this trade,
economist Walden Bello writes, is that it can reproduce one of the problems of past imperialism – the resource extractor tends to receive most of the benefit, as it has the least to lose in trade with the provider.
Vietnam is currently in no position to replicate these aggressive development strategies. It lacks the political power in Asia to become a dominant force in the region, at least for the time being. Instead, it is looking for strategic partnerships with China and other nations to give it the technology and equipment it needs to develop its industries. However, Vietnam holds a lot of potential for the future. Vietnam's highly educated population (at over 90% literacy, according to the CIA Factbook) and its port-worthy long coast will likely make it competitive as it transitions out of being a low-income country to become a competitive force in the region.
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