SOEs as a Driving Force Behind the 2013 Constitution-Making
SOE reforms were among the issues hotly debated during the 2013 constitutionmaking process. By that time, Vietnam had been engaging in rapidly changing economic, social, and political reforms and had started facing considerable challenges in the post-2008 financial crisis period.[988] With regards to SOEs, at least three major issues stood out: urgency on needed market reforms due to Vietnam's overall stagnant growth; increased public dissatisfaction with non-performing SOEs and related corruption; and tension over the government's preferential treatment of SOEs, particularly over access to land.
First, on growth, Vietnam's economic performance has often been associated with the performance legitimacy of the ruling VCP in the post-1986 reform era.[989] While on a trajectory of high GDP growth, Vietnam started facing a significant
State-Owned Enterprises in Vietnam’s 2013 Constitution 283 slow-down after the 2007-2008 global financial crisis.[990] In 2007, just as the financial crisis started to unravel, Vietnam had managed to achieve an impressive growth rate of eight per cent and celebrated its new membership in the World Trade Organisation (WTO).[991] Undeniably a stepping stone for the country's integration within the international community, the early years of WTO accession witnessed optimistic economic measures, including high growth rates, a boon in foreign investments, and rapidly expanding exports.[992] At the same time, Vietnamese planners were under increasing pressure to reform its legal and economic systems to align with WTO requirements. As the financial crisis worsened around the globe, the VCP faced high public debt, a shrinking private sector, and a series of public sector scandals with spotlights on SOEs.[993] Rising tension in the South China Sea also added additional pressure on restoring Vietnam's economic stature.
In national security context, economic prowess is not just a matter of wealth or living standards, but also an indication of Vietnam's standing in the world order.[994] The stronger Vietnam is economically, the more sure-footed it can feel vis-a-vis its formidable neighbour China. As such, anxiety over Vietnam's market reforms is intrinsically entwined with the VCP's legitimacy and the country's broader sense of sovereignty and security.[995]Second, against this backdrop, public dissatisfaction with SOE governance reached a new height in the period leading up to the constitutional-making process. While SOE reforms were gaining significant momentum around the WTO accession period,[996] ironically Vietnam's WTO membership also contributed to what scholars have called ‘reserved SOE reforms', whereby the creation and expansion of SEGs resulted in even stronger footholds for SOEs in general.[997] The Unified Enterprise Law of 2006, which had been promulgated in anticipation of Vietnam's WTO accession, had garnered praise as a first step towards promoting a level playing field between the public and private sectors.[998] But while the law was able to achieve ‘low-hanging fruit' reforms, for example, in the closure and sell-off of low-performing SOEs, large SEGs, with complicated management structures
and favoured access to critical resources such as credit and land, remained largely untouched.[999] In the period from 2008 to 2013, the rate of SOE privatisation - a critical goal of the Unified Enterprise Law - had slowed down significantly.[1000] Meanwhile, to counter the effect of the global financial crisis in the face of a weak private sector, SEGs were allowed to diversify their business by investing in banking, insurance, and financial companies, enabling new forms of credits and cross-subsidies.[1001] Instead of getting an external bank loan, for example, an SEG could direct a subsidiary bank to open credit lines to fund its other businesses. In effect, this new business structure transformed otherwise market transactions into internal business matters.
While SEGs still needed to conform with Vietnamese banking regulations, transforming SOEs' financial needs into internal matters effectively bypassed WTO's non-discrimination and national treatment rules, or at least making such violations much harder to detect.[1002]SEGs' expansion soon became publicly problematic just as Vietnam's constitution-making process was underway. Between 2010 and 2013, a number of SEGs, notably the Vietnam Shipbuilding Industry Group (Vinashin), once one of the world's largest shipbuilders, became insolvent after amassing over $4 billion in debt.[1003] In its aftermath, Vinashin's former executives were convicted and sentenced to jail time for embezzlement and abuse of power.[1004] The Vietnamese Government had put in over $150 million to keep Vinashin afloat.[1005] As news of the Vinashin bankruptcy and corruption scandal spread, international rating agencies responded by downgrading Vietnam's national credit rating, triggering a legitimacy crisis among Vietnamese leaders.[1006] In a rather extraordinary development, at the Sixth Plenum of the 11th Central Committee in 2012, members of the Politburo - Vietnam's highest political body - engaged in self-criticism for their failure with regards to the state sector.[1007] The National Assembly soon passed a resolution calling for its first ever confidence vote, which allowed delegates to rate incumbent officials, including the most senior officials, with high, medium, or low confidence, depending on their evaluation of the official's performance.[1008] Then-Prime Minister Nguyen Tan Dung, who was seen as the chief architect in the
State-Owned Enterprises in Vietnam’s 2013 Constitution 285 expansion of SEGs, while receiving over 60 per cent of ‘high confidence' votes, also received the second highest share of ‘low confidence' votes (32 per cent).[1009] Though no senior official received enough ‘low confidence' votes to trigger further proceedings, the unprecedented procedure revealed a rare glimpse into the contention and division among Vietnam's elite politicians on the related issues of SOE governance failure and Vietnam's looming credit crisis.[1010]
Finally, SOEs were also at the centre of another longstanding issue in Vietnam, that is, tension over land use.
Instead of private ownership and property titles, Vietnam utilises long-term leases called Land Use Rights Certificates (LURCs) that enable lessees to use, exchange, rent, and even mortgage land under the 2003 Land Law.[1011] These leases facilitated both a vibrant real estate market while meeting the constitutional requirement that land is ‘owned by the people and managed by the state'.[1012] By 2013, however, the first batches of LURCs issued under the 1993 Land Law would have expired, yet renewal policies remained uncertain.[1013] SOEs have historically enjoyed special privilege with regards to land compared to the private sector, including access, allocation, and the ability to use land as collateral.[1014] Tension over land seizure involving SOEs, complex evaluation of SOE-allocated land, and uncertainties over the impending expiration of LURCs further contributed to the brewing debates on SOE reforms leading up to the constitutional-making process.In sum, major scandals relating to SOEs, coupled with the urgency on economic reforms and long-standing unresolved issues regarding state-market relations all contributed to SOEs being a core issue in the constitutional-making debates, as outlined in the next Section.
IV.