Viet Nam’s general economic model is a socialist-oriented market economy, “a form of economic organisation that both adheres to market economy laws, and is based on, guided, and governed by the principles and nature of socialism.”
This allows for a multi-sector economic structure, where all sectors are “equal in legal status and free to conduct business.” The three main economic sectors are defined as: the state-owned economy, the private economy, and the foreign-invested economy.
Expanding successful models
Draft documents for the 14th National Party Congress set targets for Viet Nam to become a developing country with modern industry and upper-middle income by 2030, and a developed, high-income nation by 2045.
To achieve these ambitious goals, each economic sector must have distinct roles and functions. The differences in these functions form the basis for policy differentiation, as each economic actor undertakes specific production and business roles. The State may grant certain priorities or incentives to specific functions or missions, depending on their strategic national importance at a given time, without distinguishing between sectors.
To fully harness the strengths of each sector in line with the socialist-oriented market economy model, the roles of the three principal economic sectors are defined as follows: The state-owned economy plays a leading role; The private economy serves as the most important driving force for national economic growth; The foreign-invested economy (FDI) acts as a vital supporting sector. The leading role of the state-owned economy lies in its function to orient, facilitate, guide, and regulate development processes in pursuit of socialist objectives within Viet Nam’s modern market economy, functions that other sectors cannot independently perform.
Unlike earlier conceptions, this leadership role is no longer about dominating all key economic areas or ensuring rapid growth and efficiency, but rather about providing strategic direction and stability. The primary driving force for national economic development should rest with the private sector.
The foreign-invested sector, meanwhile, plays an important supporting role. As Viet Nam continues its development journey, it relies on contributions from global economies, not only in terms of financial capital, but more importantly through technology and knowledge transfer.
Functions of each economic sector
For the state-owned sector, its leading role in development is expressed through several key functions: developing and implementing strategic policies, and ensuring economic security. The state economy controls key pillars such as energy, finance, banking, essential infrastructure, defence industry, and national data systems.
These sectors are not only vital for steering the economy towards socially necessary objectives, but also linked to sovereignty, defence, and national security. When markets fluctuate or crises occur, the state sector serves as the “stabiliser,” ensuring systemic safety and national resilience. It also leads and supports the development of other sectors, pioneering in foundational or high-risk areas that the private sector may be unwilling or unable to enter, such as core technologies, renewable energy, digital infrastructure, green transition, and artificial intelligence.
In addition, the state-owned economy functions as a macroeconomic stabiliser. Through state-owned enterprises, the national budget, and reserve funds, it ensures financial and fiscal stability, maintains monetary and trade balances, guarantees energy and food security, and prevents prolonged trade or payment deficits, public debt issues, or foreign reserve depletion. It also serves as a model, shaping new and modern economic trends.
For the private sector, its main functions centre on being the driving force for economic growth, profitability, and budget revenue, arguably its most essential role.
For the private sector, its development should be strengthened based on its core functions: serving as a driving force for economic growth, profitability, and budget revenue. This can be regarded as the most crucial function enabling the private sector to assume its role as the main engine of national development.
The private sector must invest in new ideas and production facilities, pursue research and innovation, and adopt advanced technologies to seize profit opportunities and create continuous value. This fosters productivity, knowledge transfer, and constant economic dynamism.
Currently in Viet Nam, private sector contributions to growth and fiscal revenue remain modest. Therefore, there is a need to develop large-scale private economic conglomerates of regional and global stature, support small and medium-sized enterprises (SMEs), strengthen household and cooperative economies, and encourage private participation in strategic national industries.
According to the World Bank, over 90% of jobs in developing countries are created by the private sector. The International Labour Organisation (ILO) also notes that private enterprises generate 60–70% of employment in developed countries, playing a crucial role in replacing state-owned enterprises in job creation and unemployment reduction.
In Viet Nam, as of 2023, 85% of the workforce was employed in the private sector. Moreover, private enterprises are increasingly essential in providing essential services and alleviating poverty, especially at a time when the State must seek alternatives to public investment and explore more efficient service delivery models.
For the foreign-invested sector (FDI), its key functions as a vital supporting component include improving financial quality, efficiency, and competitiveness. FDI projects not only bring immediate economic value, but also deliver long-term benefits such as enhanced labour productivity, better capital use, and strengthened national competitiveness.
FDI attraction should prioritise key areas such as artificial intelligence, renewable energy, biotechnology, and chemistry, helping Vietnam align with global trends in science, technology, and innovation.
Another major function of the FDI sector is effective technology transfer. FDI projects must demonstrate advanced technological capacity in line with international standards, include clear technology transfer roadmaps to domestic enterprises, and encourage the establishment of research and development (R&D) centres in Viet Nam. These centres should help lead the R&D ecosystem in cooperation with Vietnamese universities and research institutes.
Finally, the FDI sector should facilitate connectivity and spillover effects, enabling domestic firms to integrate into global value chains, supporting Viet Nam’s goal of becoming ASEAN’s leading hub for supporting industries, semiconductor manufacturing, and high-tech processing and manufacturing, where domestic and foreign enterprises develop in tandem.
