Vietnam's push for 'chip-to-ship' conglomerates raises red flags

Francesco Guarascio, Reuters

Two days after Vietnam's top leader called on local private companies to help build infrastructure, listed conglomerate Vingroup stepped forward to develop a $70 billion nationwide high-speed railway and build the trains to run on it. Communist Party leader To Lam's request was part of a broader call for a stronger private sector in Resolution 68, a party development blueprint issued in May that some analysts labelled 'Doi Moi 2.0' after the 1980s reforms that opened the Southeast Asian nation's economy.

Six months on, views on Resolution 68's possible impact range from upbeat to worried, but the thrust of the initiative has become clearer: It is less about liberalisation and more about boosting national champions, according to a dozen business advisers and economists. The high-speed railway, Vietnam's most expensive infrastructure project, has emerged as a test case — and a source of financial stability concerns flagged in rare instances of explicit criticism by the central bank and finance ministry in documents seen by Reuters.

Vingroup, whose core business is property, in October set up a subsidiary to produce steel for civil works, after bidding for the railway. Under its proposal, the state would cover land compensation and fund 80% of the project via interest-free loans with decades-long maturities.

Vietnam's central bank warned of Vingroup's high leverage and lack of rail experience, saying the project needed special state guarantees "to ensure the safety of banking operations", it wrote in an opinion dated May 19 that was reviewed by Reuters.

The finance ministry said the proposed 0% interest rate amounted to a state subsidy that could affect Vietnam's credit ratings. It also flagged the 30-year repayment schedule - with debt serviced only at maturity - as "very risky", according to a government document.

Three people briefed on the matter said state officials encouraged Vingroup to bid and discussed possible real estate projects along the railway. One said support for Vingroup's loss-making EV maker VinFast was also discussed.

They declined to be named because the conversations were confidential. Two months after the bid, the government announced a ban on fossil-fuel motorbikes in central Hanoi from mid-2026, citing pollution concerns, leading to a plunge in Honda sales and surging demand for VinFast's electric models.

Asked by Reuters, Vingroup said its debt level was "safe by international standards", it had not discussed with authorities any privileged treatment and was conscious of its responsibility on strategic projects.

"Over-reliance on selected business groups to drive growth and funnelling credit through them can exacerbate concentration risks in banks' loan portfolios," Willie Tanoto of rating agency Fitch told Reuters, noting the planned reforms might however improve capital allocation if properly supervised.

Shortly after Vingroup's bid, local car assembler Thaco made a similar proposal for the railway.

Vietnam's central bank, finance ministry and government did not respond to requests for comment.

The government has not yet named a contractor but a draft resolution seen by Reuters largely confirms the funding strategy proposed by the two Vietnamese conglomerates.

Construction on the first line connecting Hanoi with Ho Chi Minh City, more than 1,500 kilometres (932 miles) away, is expected to start next year. The Communist-run country aims to make the private sector the key "driving force" of the economy under the state's "leading role", according to a party document released in October.

To achieve that, it wants more private Vietnamese companies to have a global footprint and is willing to favour their involvement in strategic projects with incentives and "preferential policies", such as "limited bidding or direct contracting", according to Resolution 68.

Fostering national champions with supportive measures is a clear objective of the new policy, said Nguyen Ba Hung, senior economist at the Asian Development Bank, but added it was important to ensure large conglomerates did not acquire excessive influence.

Addressing corruption risks is mentioned only once in the 15-page document - a shift from the sweeping anti-graft campaign unleashed in recent years by late party leader Nguyen Phu Trong, which led to the arrest of multiple senior officials, at times paralysing the administration.

Hong Sun, honorary chairman of the Korean Business Association in Vietnam, says the country wants "chip-to-ship" corporations, citing South Korean chaebols as models. A senior foreign official, who asked not to be named as he was not allowed to talk to media, likened the strategy to less successful efforts in Southeast Asia where "politically-connected conglomerates operate inefficiently in protected sectors".

Overseas investors have been cautious. Investment pledges fell 5% in the five months after Resolution 68 was issued compared to the same period last year, and foreign cash has continued to exit the stock market despite a rally, with foreign ownership of Vietnamese shares down to around 15% of the total from 16% in May.

Many investors express support for the party's declared intention to boost the private sector, but others worry about transparency and favouritism. Five Vietnam-based business consultants, who asked for anonymity to protect relations with their foreign clients, reported concerns about procurement practices and preferential treatment for large firms. One business executive and two economists echoed those concerns, also requesting anonymity to speak more freely. "Recent policies tend to create a certain level of prioritisation for a few large, well-capitalised domestic investors," said Thi Nguyen, counsel at Vietnamese legal firm bizconsult, noting that may be only a temporary outcome.