enjoy lending discounts of up to 0.4% a month on the general interest rate for dong lending.

The banks know that SOE borrowing is backed by a government guarantee and often lend to
shaky SOEs ahead of promising private sector firms.

Viet Nam had 12,300 SOEs in 1990 and by March 2005, 2,242 SOEs had been equitized
including 753 in 2004, with 4,300 remaining in the hands of central, provincial and municipal
governments. The total capital of equitized SOEs amounted to VND17.7trn (US$1.13bn),
accounting for 8.2% of the state’s capital contribution to these enterprises. Of the SOEs
shares equitised, on average, 46.5% are still held by the state, 38.1% have gone to
employees and 15.4% have been sold to private investors.

Equitisation has proceeded more slowly than authorities would like, and annual and five-year
targets have gone unmet for more than a decade. The strong opposition to equitization is
primarily because SOEs have a number of advantages over private firms: they enjoy easier
access to credit and to land-use rights (the latter being a highly valued contribution to a joint
venture), they are favoured for government contracts and in the award of trade and other
licences, and some have access to subsidised loans. Workers and managers, accustomed to
the security of working for SOEs, also fear that they could lose their jobs. In addition, several
ministries oppose privatisation, as they do not want to give up the enterprises under their
control as they are sources of patronage and influence. However, a recent study by the
Ministry of Finance of 42 relatively large SOEs found that they generated low returns to
equity; such inefficiency is at the heart of the argument for privatisation45.

The government’s emphasis has shifted somewhat in recent years towards fashioning a wider
menu of equitisation options. Among the options available, besides dissolutions and mergers,
are reorganisations as limited-liability companies (often using a parent-subsidiary corporation
structure to allow each SOE unit to operate more independently); reclassifications as public
services; leasing; and subcontracting. Under a pilot scheme in place since February 2004,
large SOEs involved in key industries such as electricity, telecommunications, banking,
insurance and chemicals have begun to undertake equitisation in different forms and over
several years. Some SOEs will have all their member companies sold while still acting as a
parent company, representing the capital proportion of the state in newly formed subsidiaries.
Other SOEs will be entirely equitised, selling all their capital and assets. Still others will be
partly equitised. In the pilot scheme’s first year, the government focused on restructuring (in
preparation for equitisation) the Electronics and Informatics Corp, the Viet Nam Construction
and Import-Export Corp, the Construction Import and Export Corp, Vietcombank and the
Mekong Housing Development Bank.

45
www.eiu.com, Vietnam Country Profile 2005

66