Diverging from the "Blazing Furnace:" Vietnam's Opportunity to Attract More U.S. Investors

Vietnam has seen a series of leadership shakeups in recent months, with the country’s president and chairman of the National Assembly facing dismissal from their positions due to their alleged connections to corruption cases. This reshuffle is part of the Vietnamese Communist Party (VCP)’s anti-corruption campaign that has intensified in the last two years. Although the anti-corruption campaign aims to dislodge Vietnam’s long-standing bribery culture and revive public trust in the party, the intensification of the campaign may do more harm than good, including by sparking concern about the country’s long-term political stability among foreign investors. While Vietnam has experienced a surge in U.S. investment in recent years, could increasing corruption scandals steer investors away? In order to attract more U.S. investment, the VCP should distribute its attention equally between fighting corruption and improving its legal framework to stabilize the economy.

Nguyen Phu Trong’s "Blazing Furnace”

Although there have been numerous efforts to fight corruption since the country’s doi moi economic reforms in 1986, Vietnam’s anti-corruption efforts still perform poorly. In 2023, Vietnam was ranked 83 out of 180 countries on the Corruption Perceptions Index with a score of 41 out of 100. Since Nguyen Phu Trong became VCP general secretary in 2016, he has renewed the party’s efforts to eradicate corruption. The campaign, dubbed the “blazing furnace” by Trong, aims to raise public awareness against corruption, so that public servants “cannot, do not want to, dare not, and do not need to” commit corruption. In 2023, the party disciplined 24,162 people, a 12 percent increase from 2022, for receiving bribes or wrongly declaring their income. However, the “blazing furnace” has yielded mixed results. Although the VCP claimed that 93 percent of cadres, party members, and citizens trust the party in leading the anti-corruption campaign in 2020, this number remains unverified. Moreover, in one survey conducted in 2022, only 13 percent of respondents in Ho Chi Minh City and 35 percent of those in Hanoi believed that corruption had decreased in the past year.

Concerns about Legal Framework Insufficiency in Vietnam

Amid rising U.S.-China competition and geopolitical instability across the Taiwan Strait, many U.S. businesses have moved their manufacturing facilities from China to other countries, with Vietnam being one such beneficiary. Following the upgrade to the U.S.-Vietnam Comprehensive Strategic Partnership in September 2023, U.S. interest in investing in Vietnam has significantly increased. Notably, 15 U.S. companies, including semiconductor firms, have expressed interest in investing $8 billion in Vietnam’s clean energy infrastructure. 

But political upheaval over the past few months may raise questions among U.S. foreign investors about Vietnam. As an investment-reliant country, such uncertainty could imperil Vietnam’s future economic prospects. Consecutive leadership changes have led to a major slowdown in business activities. Government officials are hesitant to sign off on projects, reimburse state funding, and approve business licenses because of anxieties related to being investigated and wanting to avoid responsibility. In 2023, Vietnam’s disbursement rate of public investment reached only 73.5 percent of its planned target. At the same time, 63 out of 115 central agencies and localities had disbursement rates lower than the national average, with 12 of them having disbursement rates of under 20 percent. These figures showcase how business activities are significantly delayed, demonstrating the psychological impacts that the “burning furnace” has on Vietnam’s economic outlook.

While fighting against corruption can boost Vietnam’s reputation as a trusted destination to do business, U.S. investors are concerned not only about corruption, but also Vietnam's insufficient legal frameworks. In 2023, U.S. businesses frequently encountered challenges from regulations, policies, and administrative processes while doing business in Vietnam. The government has taken steps toward strengthening existing legislation and standardizing regulation, but many legal documents still overlap and contradict each other. In some sectors, the Vietnamese government has charted a different path from existing U.S. or other international standards, especially in data protection and censorship. A notable example is the adoption of Decree 53 on Cybersecurity Law in October 2023, which raised concerns among U.S. technology companies in Vietnam. The decree demands that technology firms remove “toxic content” and collect users’ data if requested by the government, albeit the definition of “toxic content” remains vague. As the Vietnamese government builds up its capacity to dictate public discourse and maintain state control over the economy, U.S. companies may find difficulties in protecting their customers’ rights while complying with an increasing number of regulations from Vietnamese authorities.

Implications for U.S. Investment in Vietnam

Although Vietnam has acknowledged weaknesses in its legal systems, the government now appears focused on domestic political affairs. As a result, Vietnam might fail to meet foreign investors’ needs for legal improvement. Indeed, Vietnam is clear about its inward-looking priorities with the installation of To Lam, the former minister of public security, as president in May of this year. To Lam’s rise to the presidency makes him one of the few eligible candidates to become party chief, the most powerful position in Vietnam, during the next party congress in 2026. By appointing a senior public security official, who was behind many top-level investigations, as head of state, the party has signaled that its battle against corruption will be one of its foremost objectives. With purges primarily targeting non-public security cadres, 7 of the 15 members of the Politburo hold either a public security or inspectorate background. This development indicates the party’s preference toward those who are loyal to its doctrines rather than those who may have more experience in macroeconomic management to assume top-level positions.

Despite the intensification of the anti-corruption campaign, corruption may continue because it is a systemic problem that cannot be resolved by punishing several high-ranking officials. To effectively fight corruption, Vietnam should pay government officials comparable to their alternative salaries in the private sector. Singapore, ranked the fifth least corrupt country in the world in 2023, exemplifies that paying civil servants well is a determining factor for its anti-corruption success. Singapore’s cabinet ministers are paid salaries equal to CEOs at multinational firms, while Vietnam’s prime minister receives approximately $1,000 monthly. Thus public servants often rely on “facilitation fees” for quicker administrative processing to compensate for their low incomes. Therefore, better paying government officials can reduce petty corruption. The VCP should also improve its disciplinary framework. Regulation 37 on what party members must not do contains difficult-to-interpret wrongdoings such as individualism, peremptoriness, and opportunism. Resolving such gray areas can increase transparency in disciplinary sanctions, easing anxieties over punishment among party cadres.

Streamlining business approvals and regulations to Western standards will be a long project that Vietnam may be hesitant to conduct. However, there is room for Vietnam to advertise its selling points without undermining its efforts to consolidate domestic affairs. The Vietnamese government should prioritize the drafting and approval processes for important laws in key emerging sectors for foreign investment, especially in the technology sector. Vietnam should notably develop a comprehensive framework for intellectual property due to the prevalence of online piracy in Vietnam. Other areas for regulation improvement are emerging technologies such as artificial intelligence and fintech. Vietnam can take inspiration from Singapore’s fintech sandbox mechanism to accommodate newly established firms in this field. In this context, Vietnam should adopt a clear enforcement path for emerging sectors to show its responsiveness to foreign partners.

From a U.S. perspective, investors should continue to carefully monitor Vietnam before making major investment decisions, especially before the National Congress scheduled for 2026 in which Trong will name his successor. To develop a trustworthy partnership, the United States should leverage existing bilateral dialogues such as the U.S.-Vietnam Asia-Pacific Dialogue, U.S.-Vietnam Comprehensive Strategic Partnership Economic Dialogue, and annual U.S. business delegations to Vietnam so that both countries can effectively communicate their concerns and priorities. By deepening economic ties, both the United States and Vietnam can achieve their respective goals: the United States can reduce its economic interdependence with China by shifting its overseas businesses to Vietnam, and the VCP can maintain its public trust through good economic performance without creating major political disruptions.

Giang Pham is a research intern with the Southeast Asia Program at the Center for Strategic and International Studies in Washington, D.C.

Giang Pham

Research Intern, Southeast Asia Program