{"id":220,"date":"2011-02-03T13:43:51","date_gmt":"2011-02-03T13:43:51","guid":{"rendered":"http:\/\/www.thebizsense.com\/views\/?p=220"},"modified":"2011-02-04T08:59:24","modified_gmt":"2011-02-04T08:59:24","slug":"the-problem-of-bloated-giants","status":"publish","type":"post","link":"https:\/\/www.thebizsense.com\/views\/featured\/the-problem-of-bloated-giants","title":{"rendered":"The problem of bloated giants"},"content":{"rendered":"

The problem of bloated giants<\/strong><\/p>\n

\"Vietnam<\/a>

Vietnam Finance<\/p><\/div>\n

Unlike its huge state-capitalist model China and its regional competitor Thailand, Vietnam runs a huge foreign trade deficit — $12 billion last year. And unlike them, its controlled currency is being devalued rather than rising in value. With inflation running at 12 per cent and interest rates for bank deposits held low, savers are fleeing the national currency, the dong, for US dollar bills and gold.<\/p>\n

At the core of the problem is a policy of channelling resources into promoting huge state-owned groups, managed by bosses appointed usually for their party family origins and connections rather than competence, and given too much freedom to build their empires without adequate central oversight.<\/p>\n

They have been favoured with government preference such as monopolistic privileges, plus unlimited access to cheap credit without much control over their headlong expansion, often into business areas where they have no experience.<\/p>\n

The consequence has been the emergence of bloated giants loaded with money-losing or unproductive operations, which have deprived the thousands of small businesses in the private sector of the resources they need to expand. There are few private businesses of any size.<\/p>\n

The Economist reported recently: \u201cThese corrupt and inefficient behemoths continue to gobble up and then squander a good share of the foreign investment and export earnings that come into the country.\u201d<\/p>\n

According to economic analyst Nguyen Quang A, the state-owned enterprises consume 40 per cent of national resources, yet deliver only a quarter of national output.<\/p>\n

The economic crisis has been brought to a head by the spectacular financial crisis at the ambitious shipbuilder Vinashin, which last month defaulted on a $60 million capital repayment due on a $600 million foreign loan. Interestingly, the government for the first time refused to bail out one of its troubled children, although it did provide funds to ensure that the group\u2019s employees were paid.<\/p>\n

Moody\u2019s, the credit rating agency, reacted by downgrading Vietnam\u2019s sovereign debt. That makes it more difficult and expensive for the big state-owned enterprises to borrow abroad, and will force them to cut back on expansion \u2013 most of which favours, through widespread corruption, the newly-wealthy party-connected families.<\/p>\n

Hanoi, comments The Wall Street Journal, \u201cis reaping the consequences\u201d of trying to use cheap credit to spur economic growth, while neglecting fundamental reforms.\u201d<\/p>\n

Among those necessary in addition to a crackdown on high-level corruption are imposition of financial discipline on the state giants and reductions in their privileges, major improvement in technical training, modernizing university education (less emphasis on Marxist-Leninist studies, and clamping down on fake qualifications), depoliticization of the legal system and modernization of the banking system.<\/p>\n

The Vinashin event and its consequences could be the shock that drives the party leadership to institute radical changes, as it has done before. It may now realize that it must institute reforms if it can create the million additional jobs a year that they know must be created to accommodate the fast-growing labour force if they are to remain in power\u2026 and their families are going to continue enriching themselves.<\/p>\n

Vietnam has a huge potential to attract foreign investment from multinational companies following the well-known \u201cChina Plus One\u201d model \u2013 build a huge production source in China, because you have to be there, but develop at least one other in another attractive country, so you don\u2019t totally depend on China.<\/p>\n

Vietnam has already managed to attract major investors such as Canon, Samsung, Intel and Hon Hai. Interestingly enough, the biggest foreign investor by source country is not China but Taiwan, the mainland\u2019s political rival.<\/p>\n

Ironically, although Vietnam claims to be a Communist country, it practices a variety of savage capitalism. According to an excellent new book*: \u201cThe sick have to pay for healthcare, parents have to pay for schooling and the unemployed are left to fend for themselves.\u201d<\/p>\n

Clearly visible to visitors such as myself, the Vietnamese have all the qualities of commitment to hard work, thrift, education and determination to advance themselves that offer explosive potential for economic growth if only some of the deadweight of the exploitive party dictatorship were to be lifted from their necks.<\/p>\n

this article is a continuation from – Vietnam: a Speculative Bet on the Future<\/a><\/p>\n

and is followed by the final article – The shares: base-building for lift-off?<\/a><\/p>\n

CopyRight \u2013 OnTarget January 2011 by Martin Spring<\/p>\n","protected":false},"excerpt":{"rendered":"

The problem of bloated giants Unlike its huge state-capitalist model China and its regional competitor Thailand, Vietnam runs a huge foreign trade deficit — $12 billion last year. And unlike them, its controlled currency is being devalued rather than rising in value. With inflation running at 12 per cent and interest rates for bank deposits held low, savers are fleeing the national currency, the dong, for US dollar bills and gold. At the core of the problem is a policy of channelling resources into promoting huge state-owned groups, managed by bosses appointed usually for their party family origins and connections <\/p>\n","protected":false},"author":1,"featured_media":221,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"amazonpipp_noncename":"","amazon-product-isactive":"","amazon-product-single-asin":"","amazon-product-content-location":"","amazon-product-content-hook-override":"","amazon-product-excerpt-hook-override":"","amazon-product-singular-only":"","amazon-product-amazon-desc":"","amazon-product-show-gallery":"","amazon-product-show-features":"","amazon-product-newwindow":"","amazon-product-show-list-price":"","amazon-product-show-used-price":"","amazon-product-show-saved-amt":"","amazon-product-timestamp":"","amazon-product-new-title":"","amazon-product-use-cartURL":"","amazon_featured_post_meta_key":"","_amazon_featured_alt":"","amazon-product-template":"","footnotes":""},"categories":[8,15,9],"tags":[18,291,47],"class_list":["post-220","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-featured","category-finance","category-news","tag-economy","tag-finance","tag-vietnam","has_thumb"],"yoast_head":"The problem of bloated giants - TheBizSense Views<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.thebizsense.com\/views\/featured\/the-problem-of-bloated-giants\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The problem of bloated giants - TheBizSense Views\" \/>\n<meta property=\"og:description\" content=\"The problem of bloated giants Unlike its huge state-capitalist model China and its regional competitor Thailand, Vietnam runs a huge foreign trade deficit — $12 billion last year. 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