Can Vietnam Achieve More Robust Economic Growth? Insights from a Comparative Analysis of Economic Reforms in Vietnam and China

By Khuong, Vu Minh | Journal of Southeast Asian Economies, April 2015 | Go to article overview

Can Vietnam Achieve More Robust Economic Growth? Insights from a Comparative Analysis of Economic Reforms in Vietnam and China


Khuong, Vu Minh, Journal of Southeast Asian Economies


1. Introduction

Vietnam first initiated its modern era of economic reforms (known as Doi Moi, or "renovation") in 1986, eight years after the launch of China's 1978 reforms. The reforms initiated by the two countries are strikingly similar in most respects, from the factors supporting them and the concurrent socioeconomic conditions to the reform approaches and their impressive outcomes. At the same time, however, the performance gap between the two countries has been persistently wide.

This paper conducts an in-depth comparative study of the economic performance of Vietnam and China during their reform periods, aiming to reveal the factors that have prevented Vietnam from realizing its full economic growth potential. It may seem inappropriate to use China, which is many times the size of Vietnam, as a benchmark to assess the latter's economic performance. However, given the context in which both countries suffered from severe economic stagnations caused by ideology-driven mismanagement and adopted similar approaches in market-oriented reforms (see section 2 below), this comparison could provide valuable insights into policy measures that can help Vietnam accelerate its economic growth and achieve sustained robust growth in the long-term. These insights are even more important given Vietnam's significant economic slowdown over the past few years. It has underperformed in GDP growth compared both to its neighbouring countries (Figure 1) and to nearly half of its Asian peers (Table 1). As a result, the rank in terms of the per capita income of Vietnam in this group dropped from the median position in 2008 to below this level in 2013 (Table 1).

The remainder of the paper is structured as follows. Section 2 presents the similarities between Vietnam and China in their reform paths. Section 3 analyses the gap between the two countries in economic performance, with a special focus on the efficiency and robustness of growth. Section 4 presents factors that impeded Vietnam from achieving more robust economic performance and exacerbated its vulnerability to external shocks. Section 5 discusses lessons from China that Vietnam can use to bolster reforms and improve economic performance.

2. Similarities between the Reform Paths of Vietnam and China

2.1. Factors Leading to Economic Reforms

As described by Vu (2009), economic reforms in China and Vietnam were both driven by three factors that are essential for a major change in a rigid system: receptivity; crisis; and opportunity. With regard to receptivity, both countries embarked on economic reforms after becoming increasingly dissatisfied with the legacy of their respective development approaches, coming to the conclusion that fundamental changes were necessary for survival and growth. The crisis that compelled each country to adopt reforms was related to the precipitous decline in the agricultural sector, a sector on which more than 80 per cent of the population relied for employment. The opportunity that paved the way for reform in each country was associated with the death of its powerful leader--for Vietnam, General Secretary Le Duan (1986), and for China, Chairman Mao Zedong (1976). These transformative events enabled new leaders with a more pragmatic view and a stronger sense of urgency to emerge.

The comparable circumstances in China and Vietnam, as presented above, suggest that reforms in both countries are similar by nature, as both were driven by economic motives and the need to maintain the legitimacy of their one-party rule.

2.2. Similarities in Socio-economic Conditions at the Time of Reforms

At the launch of their respective economic reforms, China and Vietnam faced similar socio-economic conditions. In particular, both countries were at comparable levels of key development measures related to basic human capital, income per capita, rural economy, infrastructure and openness.

With respect to basic human capital indicators, both China and Vietnam had comparable levels of literacy and nutrition. …

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