Vietnam will be the next Asian Tiger

This article first appeared in The Edge Malaysia Weekly on May 18, 2026 – May 24, 2026

The moniker “Asian Tiger” was first coined in the late-1970s, referring to four countries — Hong Kong, Singapore, South Korea and Taiwan — whose economies underwent very rapid industrialisation to achieve developed, high-income nation status within a single generation (between the 1960s and 1990s). Their playbook is a combination of export-led manufacturing growth, integration into global supply chain and trade, strong government policy support, heavy investments in infrastructure and education, and institutional reforms.

Vietnam has embraced many of these traits to transform its economy over the past four decades. Gross domestic product (GDP) per capita has grown exponentially, from US$608 in 1986 to US$4,018 in 2024 (see Chart 1). Adjusted for local prices, the gains are even more impressive, with GDP per capita rising to US$14,415 in purchasing power parity (PPP) terms, with an emerging upper-middle class that is now driving consumption.

The economic success story of Vietnam is often narrated as the “China+1” strategy — Vietnam benefited from supply chain relocation out of China. If true, why not the other Asean nations? The larger reason is because the Vietnamese government incentivised growth, scaling back the role of state-owned enterprises (SOEs), strengthening and consolidating the banks, acting aggressively against speculations in property and financial markets, disallowing bailout of the elites and instead, going after the corrupt, including with death sentences.

In 2024, President To Lam, who is also general secretary of the Communist Party of Vietnam (CPV), declared “a new era of development” for the nation, launching major political and economic reform policies that would propel it to high-income status by 2045. To emerge as the next Asian Tiger. Will it succeed where others in the region have failed to escape the middle-income trap?

Vietnam followed the traditional path in its early economic development, kick-starting with the Doi Moi (translated as “renovation” or “renewal”) economic reform policy in 1986 that transitioned the country from a centrally planned economy to a socialist-oriented market economy. This is similar to Deng Xiao ping’s reform and opening up of China in the late-1970s. The country allowed capitalism — legalised private business, and encouraged entrepreneurship and foreign direct investment (FDI) — to drive the economy under the strict guidance and watchful eyes of the CPV. It simplified investment procedures, introduced tax incentives (focusing on designated industrial zones/parks) and prioritised export-oriented industries. Over the next two decades, Vietnam benefited from the lifting of US economic sanctions (1994), which spurred trade and FDI from Asian and Western multinational companies (MNCs), membership in Asean (1995) and, crucially, accession to the World Trade Organization (WTO) in 2007. GDP during this period saw a robust compound annual growth rate (CAGR) of 6.93%. Poverty fell sharply.

Vietnam’s accession to the WTO was a high point for the nation — attracting more than US$6 billion worth of FDI inflows in 2007 alone. FDI rose to 8.7% and 9.7% of GDP in 2007 and 2008 respectively from 3.6% in 2006.

But the WTO entry was also the primary cause of the ensuing banking crisis, property and stock markets collapse. It brought a surge of external capital inflows into a financial market that, while still tightly regulated, was opening to outside participation for the first time at scale. On the manufacturing front, Samsung announced the opening of its first mega-factory in Bac Ninh in 2008. The then prime minister, Nguyen Tan Dung, acted to accelerate GDP growth by loosening fiscal and monetary policies.

Banks, flush with cash and under pressure to grow, lent aggressively, applying minimal credit standards. Money supply growth in 2007 was a high 46%. SOEs expanded aggressively across multiple sectors outside their core businesses, dominating the economy but delivering low returns.

Speculative money poured into the stock and property markets on the back of investor exuberance. Private debt jumped from 51.5% of GDP in 2006 to 67.5%. Property prices in parts of the country rose to roughly three to five times compared with late-2006 levels. Affordability plunged. The main stock index peaked in March that year.

It was classic cheap + easy money + exuberance = poor capital allocation + speculation = bubble followed by bubble burst. We have seen this play out so many times across the world.

Inflation surged to as high as 23.1% in 2008 (see Chart 3). The State Bank of Vietnam (SBV) initially tightened monetary policy in response, lifting the refinancing interest rate (the main policy benchmark) from 7.5% in April to 13% by May. Money supply growth was pared to 20.3% and private debt dipped marginally to 65.3% of GDP.

The advent of the Global Financial Crisis (GFC) triggered a reversal in capital inflows and FDI as a percentage of GDP fell sharply. By November 2008, the stock market had crashed, losing 70% of its value from the March 2007 peak. And the property market imploded, leading to rising non-performing loans (NPL) in the banking system. In August 2008, two out of the 41 banks in the country had more than 50% of their loan portfolios in real estate. Nine banks had property-related lending accounting for more than 30% of total loans, and another nine had more than 20%.

That led the government to reverse course, loosening monetary policy and rolling out a US$6 billion stimulus package to support the flagging economy as global economic growth and exports slowed. Money supply growth reaccelerated to 29% in 2009. Private debt saw a renewed surge to 90.4% of GDP in 2010. Inflation that had fallen in 2009-2010 climbed back up to 18.7% in 2011.

To bring inflation under control, the SBV once again tightened monetary policy, raising interest rates from 9% to 15% between January and November 2011. For borrowers with variable-rate property loans, which was most of the market, the effect was devastating and immediate — setting the stage for higher NPLs and the banking crisis that followed.

By 2012, real estate developers were saddled with excess inventory amid a stretched out and depressed market. Property prices — as well as buyer and investor confidence — collapsed. Some areas experienced price decreases of up to 40% and transactions dried up. High interest rates and a reduction in property prices led to a decline in the banks’ asset values. The official NPL ratio was reported to be around 3% to 4%, but independent agencies like Fitch and Moody’s estimated that the “real” bad debt was likely between 13% and 20% of total loans.

Shipbuilder Vinashin — the poster child of state-owned conglomerates that, during its heyday, commanded approximately 70% of the nation’s shipbuilding capacity — collapsed and defaulted on its debts in 2010. It had borrowed billions to expand into unrelated businesses like real estate and finance. When it failed, it created a massive hole in the balance sheets of state-owned banks. Its chairman and senior executives were arrested, convicted of mismanaging state resources and received lengthy prison sentences. Two were given death sentences for corruption.

Vinashin symbolised overleveraged SOEs, political favouritism, poor capital allocation, misuse of state funds, wasteful spending and governance failure during this period of excesses.

The Vietnam Asset Management Company (VAMC) — a “bad bank” — was created to buy NPLs from banks using special bonds (typically zero interest up to a five-year term). Banks could then use the bonds as collateral to borrow from the SBV for liquidity. The selling bank had to set aside provisions of at least 20% of the bond value each year. If, by the time the special bonds matured and the bad debt had not been resolved, the bank generally had to repurchase the unresolved bad debt from VAMC. (Yes, no bailouts.)

Nine “weak” banks were identified. Some were forced to merge with stronger banks by the SBV. SCB, Ficombank and TinNghiaBank were consolidated into a new Saigon Commercial Bank (SCB). Habubank was merged into SHB. In 2015, the SBV acquired three different banks at zero cost, effectively nationalising them to prevent a collapse of public confidence.

Banking regulations were tightened. For instance, the government introduced stricter rules on how banks classified bad debts, required provisions to be under standards that were closer to international practice and developed internal credit-rating systems to assess borrowers and support loan classification. Inflation stabilised, and has averaged around 3% annually since 2016.

SOEs were restructured, disposing of their non-core assets and reducing their economic footprint. They are less dominant in the economy today. Governance and capital returns improved gradually. To further improve the quality of GDP growth, credit was directed from securities and real estate to production industries targeted for exports. This coincided with the beginning of the “China+1” strategy, as investments relocated to lower-wage emerging countries such as Vietnam.

In summary, the crisis became the catalyst to re-focus the nation — towards a more disciplined, export-oriented economy, freer from the tradition of state capture that has plagued so many regional nations. The government became more of an enabler rather than a driver for economic growth.

Export-led industrialisation

Vietnam is checking key boxes in the classic Asian Tiger model — high domestic savings and FDIs and export-led industrialisation. The Vietnamese economy has continued to transition away from natural resources and agriculture. Back in 2007, 44.8% of the country’s exports were primary products (agriculture, fuels, raw mining material), while manufactured goods made up 54.4%. Just four years later in 2011, Vietnam’s manufactured exports had climbed to 64.2% of total exports, while primary products exports had fallen to 35.1%. More importantly, the type of manufactured goods reflects a trend of increasing value-added and product sophistication (see Table 1).

In 2018, textiles, footwear and headwear together accounted for 22.9% of total exports: a classic low-cost labour-intensive economy that competes on price. By 2024, that share had fallen to 16.6%. Over the same period, machines rose from 42.8% of exports, to 54.9%. The nation has embedded itself into the global supply chain, with investments from the likes of Samsung, Intel, LG Electronics, Bosch and Foxconn. Vietnam is exporting products that look increasingly more like early Taiwan’s export basket than Bangladesh’s.

The import and export data reflect Vietnam’s role as an assembly hub in global supply chains — importing components and intermediate goods, adding value through manufacturing and assembly, and exporting the output. Manufacturing accounts for some two-thirds of total FDI. And its contribution has grown from 17% of GDP in 2010 to 24% in 2024, while agriculture, forestry and fishing has contracted from 15% to 10% over the same period. Mining and quarrying, once a significant 7% contribution to GDP, has been reduced to just 2% (see Table 2). Contracting sectors are ones that extract, while expanding sectors are ones that build.

Private-sector led investment engine

Manufacturing’s share of gross capital formation rose from 20.9% in 2010 to 23.7% in 2024. In constant 2010 prices, manufacturing investments grew by 158% over that period, from VND218,612 billion to VND563,381 billion. The rise in transportation and storage investments — from 11.3% of gross capital formation in 2010 to 16.2% in 2024 — and capacity is supportive of a larger manufacturing base.

Notably, state investments in manufacturing have declined since 2010, falling 61% from VND34,047 billion to VND13,177 billion, while investments in transportation and storage grew 252%. In other words, the government is not trying to build and run the factories. It is building the infrastructure that allows private factories to flourish. Highways, ports and logistics networks are not productive assets in isolation. But they are the connective tissue that allows manufacturing scale to compound.

FDI is robust. Actual FDI disbursements — implemented capital rather than registered commitments which can be inflated or never deployed — grew from approximately US$11 billion in 2010 to US$25.4 billion in 2024. In fact, Vietnam’s realised FDI inflows have exceeded Malaysia’s in recent years (see Chart 4). Aside from lower wages, the “China+1” strategy is now driven by geopolitics and the pressing need for supply chain resilience.

Importantly, domestic private investment was growing even faster than FDI. At constant 2010 prices, domestic private sector investments grew 185% between 2010 and 2024 — accounting for 55.9% of total gross capital formation in 2024, up from 44.6% in 2010. State’s share fell from 34.9% to 27.6% over the same period. The engine driving Vietnam’s investment cycle is no longer the government, but the domestic private sector.

The clearest validation of whether investment of this scale has been productive rather than merely voluminous is the current account. In 2015, Vietnam ran a current account deficit of around 1% of GDP. By 2023, it had swung to a surplus of 6.4%. Vietnam today has the fourth largest goods trade surplus with the US — after the EU, China and Mexico.

A large, young, well-educated, productive and still relatively cheap labour force

Vietnam’s productivity story is best understood through the changing composition of its growth. Total Factor Productivity (TFP) is the portion of growth that is attributable to efficiency gains, rather than simply adding capital or labour. Between 2011 and 2015, TFP contributed 34.8% of Vietnam’s overall growth, against capital’s 49.9% and labour’s 15.3%. By the 2016-2020 period, TFP’s contribution had risen to 46%, even as labour’s contribution fell to just 1.8%. Growth had become less dependent on throwing inputs at a problem, and more dependent on using existing inputs more efficiently.

The 2021-2023 period shows some moderation, with TFP’s contribution easing back to 39.3% as the economy absorbed Covid-19 pandemic-displaced workers. Whether Vietnam can sustain its productivity growth is the central question that will determine whether it joins the Tigers or stalls. Of note, Vietnam’s productivity growth has consistently exceeded that of Malaysia’s (see Chart 5).

Vietnam has a large population of over 100 million that is relatively young, with a median age of around 33 to 34 years. For a lower-middle income country, Vietnamese students’ Programme for International Student Assessment (PISA) scores are near Organisation for Economic Co-operation and Development (OECD) levels — Mathematics (469), Science (472) and Reading (462). In fact, the scores are well above those of Malaysian students (409, 416 and 388 respectively). In addition, despite their political background, the Vietnamese people are seen to be entrepreneurial and hold positive attitudes towards capitalism.

Fiscal discipline including scaling back the civil workforce

Government debt to GDP peaked at 47.9% in 2016 and has fallen in almost every year since, to 32.9% by 2024 (see Chart 6). That includes the Covid-19 pandemic years when most governments spent aggressively on fiscal packages, Vietnam’s fiscal position stayed largely flat.

Notably, the number of civil servants has been on the decline, largely due to government-initiated policies (see Chart 7), including the targeted 10% payroll reduction between 2015 and 2021. Employment in government, public administration and defence peaked at approximately 1,718,100 in 2016 and fell by about 20% to 1,363,540 in 2024. Approximately 82% of total workers are currently employed in the private sector.

In February 2025, Vietnam initiated what has been described as its biggest state-sector overhaul since the original Doi Moi reforms — including the elimination-merger of five ministries, four government agencies and five state television channels. The target is to cut bureaucracy by 15% to 20%, reduce costs and improve public services efficiency. Some 100,000 public-sector jobs were initially affected through layoffs, early retirement and transfers, with more to come over the next few years. Local government restructuring was further expanded in mid-2025. At the district level, local government was abolished almost entirely and 63 provinces were also merged to become 34 in total to optimise resources.

The economic logic is straightforward. Fewer government workers mean smaller budget requirements for operating expenses and more available for development. Case in point, development investment (spending on infrastructure and public assets) rose from 27.5% of total government expenditure in 2017 to 37.4% in 2023. A smaller civil service also suggests less duplication of bureaucratic functions and friction for private enterprises navigating the regulatory environment. It is a lesson most democratic nations refuse to acknowledge.

‘Blazing furnace’ anti-corruption campaign

Vietnam has made strides in rooting out corruption. The Corruption Perceptions Index ranks countries based on their perceived levels of public sector corruption. Vietnam’s rate of change since 2012 has outpaced Malaysia’s, albeit from a lower base. It went from a score of 31 in 2012 to 41 in 2025 while Malaysia’s score improved from 49 to 52 over the same period (see Chart 8).

This improvement did not happen passively. “Blazing Furnace” launched under Nguyen Phu Trong, general secretary of the Communist Party of Vietnam from 2011-2024, was the largest anti-corruption campaign in Vietnam’s modern history, targeting not just lower-level bureaucrats but also ministers, Politburo-linked elites and SOE executives.

Former president Vo Van Thuong resigned in March 2024 for “violations and shortcomings” that harmed the party’s reputation. His predecessor, Nguyen Xuan Phuc, also resigned in January 2023 after the party said he bore political responsibility for violations and wrongdoing by officials under his watch. Former health minister Nguyen Thanh Long was convicted and sentenced to 18 years in prison in 2024 for taking bribes worth US$2.25 million (not a typo) in connection with the Viet A Covid test-kit scandal while Viet A founder and chief executive Phan Quoc Viet was sentenced to 29 years for bribing health officials to secure the test kit contracts. Dinh La Thang, a former Politburo member and PetroVietnam chairman, received a combined 31-year sentence across multiple graft cases.

In the business realm, Truong My Lan, former chairwoman of the Van Thinh Phat real estate empire and one of the richest persons in Vietnam, was sentenced to death in April 2024 for masterminding one of the biggest frauds in global history. Following Vietnam’s abolishment of the death penalty for embezzlement effective July 1, 2025, that sentence was set to be commuted to life imprisonment. The former chief inspector of SBV and several other inspectors and supervisory officials were charged for accepting bribes, with the former sentenced to life imprisonment. Top management of the Saigon Commercial Bank (SCB) at the heart of the massive fraud scandal were also charged in court. SCB’s then chairman, the previous chairman and the general director (CEO) were sentenced to life imprisonment while some board members and insiders got 16 to 20 years’ imprisonment (board members are held to account).

The signal sent to investors was clear — informal costs like opaque payments and rent-seeking arrangements that raised the true cost of doing business were no longer guaranteed protection. The campaign improved Vietnam’s corruption-perception ranking, though it also created administrative paralysis, delayed projects and initially unsettled investors.

SOEs had long been permitted to expand beyond their core mandates, borrowing against state backing to enter real estate, finance and other sectors where political connections determined outcomes. No longer. Vietnam Electricity divested non-core holdings including ABBank, Saigon Vina Land and EVN telecom. PetroVietnam was pushed to exit OceanBank and other non-core investments. Vinalines sold 20 million Maritime Bank shares while dissolving loss-making subsidiaries and narrowing its focus to shipping, ports and maritime services. Vietnam essentially forced state capital back toward its productive mandate and away from the cross-subsidisation of vested interests.

The combination of the anti-corruption campaign and SOE divestments amount to a partial dismantling of the state capture dynamic that has stunted growth in other emerging economies. Yes, corruption still exists. But Vietnam has demonstrated the political will to prosecute and restructure the institutions that enabled it.

That willingness to let established interests fail, rather than protecting them, is what distinguishes economies that break through from those that stagnate.

The most immediate risk is ironically similar to what triggered the banking crisis a decade ago — real estate credit concentration. As at end-August 2025, loans linked to real estate (which included home purchases and property-related businesses) accounted for about 24% of the total credit in the economy. Vietnam’s NPL ratio reached 4.8% in 1Q2024, compared to 4.5% at the end of 2023 (see Chart 9).

While this is a concern, it is also to be expected when an economy opens and grows rapidly. Rising incomes and urbanisation translate into higher home ownership (and demand for mortgages). Acknowledging the risks, the SBV has instructed commercial lenders to keep real estate credit growth no higher than their overall credit growth ceilings, and from the beginning of 2026, required that outstanding real estate loans at each bank must not increase faster than the overall credit growth rate. Amendments to the 2024 Law on Credit Institutions, effective October 2025, also grant the SBV authority to provide zero-interest loans directly to distressed banks to enhance crisis response speed.

The most critical factor that will enable Vietnam to escape the middle-income trap is not only its ability to move up the manufacturing value chain, but to transition from an assembly economy to one driven by innovation and productivity, where domestic companies (not MNCs) develop proprietary tech, own the IPs and brand names, and create (and control) domestic and global supply chain ecosystems. That is, not just a cog in the wheel where MNCs extract the most value while leveraging cheap domestic labour-resources and tax incentives. Assembly manufacturing captures, but a small percentage of the total value and competitive advantages of low production costs will be gradually eroded if wages are to rise. Production can be easily replaced by the next lower-cost emerging economy. Vietnam’s leaders understand this.

The Resolution 68-NQ/TW issued by Vietnam’s Politburo in May 2025 represents a big step in the right direction. It marks a major policy push to elevate the domestic private sector as the primary engine of future growth — not one of but “the most important force” — a landmark shift from previous SOE-dominated and FDI-heavy models. It recognises entrepreneurs as key national development actors, relegating SOEs to a supporting role.

The resolution explicitly includes legal protection of property rights and minimising criminal measures in civil-economic violations, freedom of business and free competition, as well as equal treatment as SOE and FDI-firms. It also aims to reduce structural bottlenecks such as licensing barriers, cut administrative procedures by at least 30% and remove barriers to capital, land, tech and data/resources. In short, Resolution 68 is a major pro-business push — a blueprint to transform its economy from SOE/FDI-heavy growth into a private-sector-driven, innovation development model. Again, the policy is reminiscent of China, where the state creates the environment but leaves it to the market to determine the winners.

The intention is clear. Enable domestic companies to grow and reduce reliance on FDI. To produce national champions that can compete effectively on a global scale — become global champions in the footsteps of the original Asian Tigers, the likes of TSMC and Foxconn in Taiwan and Samsung and Hyundai in South Korea.

Vietnam has initiated many of the necessary reforms to become the next Asian Tiger (as we have articulated above), albeit not perfectly. It remains one of the fastest growing economies in the world. Its government is reform-minded and the people are enterprising.

In the past four decades, Vietnam has made the transformation from a commodities-agriculture based economy to one driven by low-value manufacturing assembly for exports by adopting the typical developing nation economic model. The next transition from assembly to ownership of tech, IP and brand names will be even more challenging. To succeed, the nation must continue to strengthen its institutions, transparency, accountability and governance; arrest corruption and bolster public trust; upgrade infrastructure; significantly increase investments in R&D and industrial modernisation; enhance the education system (beyond foundational to focus on STEM and deepen university-research institutions-industry linkages); strengthen banking sector resilience; raise productivity; and improve capital allocation through ensuring a fair, transparent and free market environment (whether ownership is SOEs or the private sector).

Whether it can break free of the middle-income trap than has bedeviled so many developing nations — where economic progress stagnated in the absence of the next stage structural reforms — remains to be seen. On balance, based on current facts and trajectory, we believe it can.

The other crucial point we wish to make is that the blueprint of what needs to be done to become a developed, progressive, resilient economy — like Singapore, Hong Kong, Taiwan and South Korea, and now increasingly China and next, Vietnam — are well researched and articulated. It is not ideological. It does not matter whether we call it capitalist, socialist, left or right. It is aligning incentives that promote the right behaviour for the desired outcomes. (Scan QR code for our article, “Rethinking the State vs Private debate” in The Edge, May 4, 2026). Like what Vietnam is now doing — same as what past Asian Tigers have done. The real question is why are impediments either put in place or resisted from being removed in some other nations?

The Malaysian portfolio was up 0.3% for the week ended May 13, thanks to gains from Hong Leong Industries (+5.0%). United Plantations (-1.8%), LPI Capital (-0.4%) and Kim Loong Resources (-0.4%) were the big losers last week. Total portfolio returns now stand at 217.4% since inception. This portfolio is outperforming the benchmark FBM KLCI, which is down 4.6% over the same period, by a long, long way.

The Absolute Returns Portfolio, on the other hand, fell 0.8%. Total portfolio returns since inception now stand at 36.9%. The top gainers were Kanzhun (+3.5%) and Berkshire Hathaway (+3.3%) while the three biggest losers were Schneider Electric (-5.3%), Sun Hung Kai Properties (-4.5%) and Ping An Insurance – A (-1.9%).

The AI portfolio again outperformed, driven by strong investor enthusiasm for tech stocks, gaining 7.9% for the week. Last week’s gains lifted total portfolio returns since inception to 17.8%. The biggest gainers were Datadog (+42.9%), Minth (+14.1%) and Naura Technology (+6.9%) while the top losers were Amazon.com Inc (-1.8%), Alibaba (-1.0%) and Cadence Design Systems (-0.1%).

Disclaimer: This is a personal portfolio for information purposes only and does not constitute a recommendation or solicitation or expression of views to influence readers to buy/sell stocks. Our shareholders, directors and employees may have positions in or may be materially interested in any of the stocks. We may also have or have had dealings with or may provide or have provided content services to the companies mentioned in the reports.

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