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State-owned companies face new reforms

HANOI -- The Vietnamese government is beginning a new round of reforms at state-owned companies as competition from foreign corporations intensifies and the Trans-Pacific Partnership trade pact awaits ratification.

     A harbinger of this came Tuesday, when state-owned Vietnam Airlines said Japan's ANA Holdings, the parent of All Nippon Airways, is to buy into an 8.8% stake in the carrier.

     It is said there are more than 1,000 state-owned companies in Vietnam, which produce 30% of the country's gross domestic product and employ 10% of the workforce. As a group, these companies lack transparency and operate inefficiently.

     Vietnam joined the World Trade Organization in 2007, and since then the government has been restructuring its state-owned companies to comply with international standards.

     But moves to sell stock in these companies have only come in recent years. And they have been hesitant. Now with much of the world dividing itself up among trade blocs such as the ASEAN Economic Community, which took effect at the end of last year, and the TPP, the government fears Vietnam could be left behind if it were to refrain from more aggressively reforming its state-owned companies.

     Between 2011 and 2014, 242 state-owned companies in Vietnam sold stakes to the private sector. To speed up reforms, the government had planned for 289 companies to sell stakes in 2015, but only 130 companies did so.

     So far, only a dozen state-owned companies in the banking and insurance sectors have foreign-affiliated strategic alliance partners with stakes of at least 5%.

     Even Vietnam Airlines couldn't find a buyer when it tried to sell a 3.5% stake in 2014. Eventually, two Vietnamese banks that had the airline as a client acquired more than 90% of the carrier.

Attracting foreign capital

One reason selling stock in state-owned companies has not proceeded as expected is that many foreign investors are wary of the murky management at these companies and wonder whether they are hotbeds of corruption.

     They can point to a former executive of Vietnam Shipbuilding Industry Group, known as Vinashin, which effectively went down in 2010. The former executive was arrested on charges of misappropriating some $18 million. Although the case caused authorities to scrutinize state-owned companies more closely, many remain far less transparent than companies in developed countries.

     Initially, ANA was hesitant about taking a stake in Vietnam Airlines. It went through with the deal to help it establish a foothold in Southeast Asia, where travel demand is swelling. Vietnam Airlines controls 50% of the country's aviation market.

     The rise of low-cost carriers in Asia has brought inefficient state-owned airlines to their knees. But ANA's investment in Vietnam's flagship carrier could help the situation by drawing the attention of and possible investments from Western companies.

     Some of Vietnam's state-owned companies have high earnings and growth potential, including the telecom giant Viettel Group, which provides cellphone services in developing countries.

     The International Monetary Fund estimates Vietnam's GDP to have grown 6.5% in 2015, the highest expected rate among ASEAN countries. Reforming state-owned companies and attracting foreign investment will likely help the country further speed up growth.

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