Home    Practice    Restructuring of State-owned enterprises: results, challenges, and solutions
Wednesday, 03 February 2016 10:14
3573 Lượt xem

Restructuring of State-owned enterprises: results, challenges, and solutions

(LLCT) - The restructuring of State-owned enterprises (SOEs), particularly state-owned economic groups and corporations, has been meant to strengthen them and turn them into a driving force for the state sector, enabling the sector to play a leading role in the socialist-oriented market economy. Once they are public, SOEs will be able to increase their capital resources, transform their administrations, and enhance the transparency of their operations.

Such restructuring will take place at the macro level, including the adjustment of policies and legal frameworks, redistribution of resources, modification of the ownership and management structure of the entire state sector. At the micro levels, restructuring includes the adjustment of ownership, models, operational mechanisms, and the redistribution of resources at every state-owned economic group and corporation. Linked with the restructuring of the national economy, SOEs will aim to be a part of the transformation of the growth model and macro-economic stabilization, matching the country’s socio-economic development strategy for the 2011-2020 period.

Such restructuring is proposed to occur across industries and areas of business regardless of management levels or governing bodies. It is to conform to the principle of reducing the number of SOEs while improving the performance of the remaining ones.

State-owned agricultural and forest farms are to be transformed, taking into consideration the issues related to agriculture, farmers, rural areas, land management, and forest management and exploitation objectives set by the State.

Based on the general objectives of the socio-economic development strategy for the 2011-2020 period and the five-year (2011-2015) socio-economic development plan, the restructuring of SOEs aims to:

Improve the performance and competitiveness of the state sector and each individual SOE while taking into consideration their available resources;

Improve SOEs’ financial capabilities and ensure their reasonable financial structure for their wholesome and sustainable development; 

Place SOEs, particularly state-owned economic groups and corporations, on an equal footing with other enterprises; consistently and persistently apply the market principle to SOEs;

Intensify the equitization of SOEs, where the State does not need to own 100% of their registered capital; gradually establish a system of SOEs as public companies where the State has a controlling interest and is responsible for overall management in accordance with its set goals;

Seriously implement the Prime Minister-approved plan for restructuring SOEs belonging to ministries, industries and provinces;

Establish large-scale SOEs, most of which belong to multiple owners, and, some of which, by 2020, will become major state-owned economic groups able to lead or influence the national economy.

1. Results   

In implementing the five-year (2011-2015) socio-economic development plan on economic restructuring and innovating growth models, the Government instructed relevant functional bodies to focus on three main pillars: public investment, credit organizations and SOEs, particularly state-owned economic groups and corporations. In July 2012, the Prime Minister approved the SOE Restructuring Project period of 2011-2015, which focuses on state-owned economic groups and corporations. The implementation of the project has been well coordinated.

On the improvement of mechanisms and policies

The Government and relevant ministries have issued, revised, or supplemented resolutions and policies on the innovation of the organization, operation, and management of SOEs. Accordingly, the respective duties, rights, and responsibilities of the Government, including the Prime Minister, ministries, industries, local administrations, and members’ councils of state-owned economic groups and corporations, have been more clearly stipulated. Ministries have been identified as those who exercise their duties, rights and responsibilities on behalf of the state in to their respective industries.

In an effort to improve the mechanisms and policies of the management, restructuring and equitization of SOEs, the Prime Minister issued official declarations about further restructuring SOEs to solve problems about such concerns as withdrawal of capital, sale of shares, and listing of companies on the stock market.

In 2014, the Government passed decisions concerning the organization and operation of the Vietnam Rubber Group, Viettel and three other corporations. It also approved, within its purview, plans for restructuring state-owned economic groups and corporations. Most ministries, industries and local administrations decided on the restructuring of their respective corporations. The Ministry of Defense had yet to approve plans for restructuring 14 of its corporations(1).

The Ministry of Finance issued three notices concerning (1) the accounting of SOEs and determination of their value when going public, (2) the authorized representative’s responsibility for the state’s share of capital in enterprises, and (3) transference of the right to represent the owner of state capital at the State Capital Investment Corporation (SCIC). The Ministry of Home Affairs completed the draft regulations concerning people in managerial positions at enterprises where the state owns 100, or more than 50%, of their registered capital.

As regards the reorganization and equitization of SOEs and withdrawal of state capital           

Through reorganization and equitization the number of SOEs decreased from 5,655 (in 2001) to slightly over 1,300 by 2011, not including state-owned agricultural and forest farms(2). By 2013, there were 796 enterprises in which the state owned 100% of their registered capital. Of those,  eight were economic groups, 100 corporations, 25 one-member limited liability companies using the parent company-subsidiary company model, 309 independent one-member limited liability companies providing public services or products, and 543 independent one-member limited liability companies in production, business or trade(3).

Summarizing the three years of restructuring SOEs (2011-2013), the Prime Minister issued a Decree on further restructuring the SOEs. Accordingly, in 2014 and 2015, 479 SOEs were to be reorganized. Of that group, 432 were to be equitized, 22 sold, transferred, disbanded, or declared bankrupt, and 25 merged. By 2014, 167 SOEs were reorganized. Of them, 143 were equitized, one transformed into a limited liability with two or more members, three disbanded, three sold, and 14 merged(4).

In 2014, 76 SOEs invited bids for their shares for the first time. The Government approved 69 out of 109 plans for restructuring state-owned economics groups and corporations.

Based on the approved plans, relevant ministries, industries and local administrations have worked towards the goal of reducing the number of SOEs to 692 by 2015. It is expected that almost all SOEs will be equitized by 2020. The remaining SOEs will operate in state monopolies, public services, security and defense. At the same time, new SOEs with reasonable structures and high levels of competitiveness will be established. Such SOEs should focus on key industries or areas, providing essential public products or services for the society, defense, and security. They should play a leading role in the state sector and serve as an important physical force that the State can use to orientate or regulate the national economy and achieve macro-economic stability(5).

Concerning the withdrawal of state capital from economics groups and corporations, by 2014, a total of VND 6 trillion worth of initial capital and VND 8 trillion worth of actual capital was withdrawn from 233 SOEs. Amongst industries, VND 204 billion was withdrawn from securities, 297 billion from insurance, 185 billion from real estate, 1.5 trillion from finance and 1.3 trillion from banking. VND 4.5 trillion worth of state capital was withdrawn from enterprises that the state did not need to own(6).

Enterprises and local administrations that succeeded in such withdrawals included the Coal and Mineral Industries Group (VND 1,732 billion), Vietnam Posts and Telecommunications Group (VND 151 billion), Vietnam Rubber Group (VND 523 billion), State Capital Investment and Trading Corporation (nearly VND 2,017 billion), Ministry of Construction (VND 1,321 billion), Ministry of Transport (VND 595 billion) and Ho Chi Minh City (VND 318 billion). Although the withdrawn amount was relatively high, three times as much as the amount from 2013, the overall progress was unsatisfactory. This was partly due to the fact that the national economy was in a difficult situation and the stock market had yet to recover fully. Another reason was that SOEs’ investments in areas that were not their own were often ineffective or unprofitable. As a result, it was difficult to attract strategic investors.

Regarding the restructuring of economic groups and corporations

State-owned economics groups and corporations have re-set their objectives and tasks and have further clarified their roles and positions in the national economy. They have reviewed their lines of business and have removed those of little or no relevance so they can focus on their main ones.

Based on these objectives and tasks, state-owned economics groups and corporations have restructured their subsidiary companies in such a way that each of them specializes in a particular line of business in order to avoid internal competition. This has been done by merging those companies already engaged in the same line of business.

State-owned economics groups and corporations have developed financial plans so that they can begin conducting business in accordance with their own situations and solve financial problems by themselves. Depending on their characteristics and conditions, they have either sold or transferred their capital shares, or have looked for partners who can withdraw their capital shares. By September 2013, they had withdrawn more than VND 4 trillion out of 21.8 trillion worth of capital they invested in areas of business that were not their main areas. Some SOEs coordinated with each other in the process. For example, Petro Vietnam restructured its Finance Joint Stock Corporation by merging with Western Joint Stock Commercial Bank. It withdrew its capital share from its subsidiary on a gradual basis. Vietnam National Tobacco Corporation and Vietnam National Vegetable, Fruit, and Agricultural Product Corporation Limited worked with Vietnam Debts and Assets Trading Company (DATC) to settle their outstanding debts.

In relation to the reorganization of state-owned agricultural and forest farms                             

Besides the restructuring of SOEs, state-owned agricultural and forest farms began restructuring in 2003. As a result, their numbers have seen a remarkable drop. Most of them have been reorganized as one-member limited liability or joint stock companies. In 2013, there were 145 agricultural enterprises, including 2 one-member limited liability companies and 3 joint stock enterprises. 91 state-owned forest farms were reorganized as Forest Management Boards. 14 agricultural enterprises were disbanded during the reorganization process.

In 2013, the Government reviewed the ten years of implementing Resolution 28/NQ-TW on the reorganization of state-owned agricultural and forest farms. It also evaluated the pilot equitization of fruit orchards, planted forests, cattle farms and processing facilities, the performance of reorganized agricultural, and forest farms as well as the management of land usage at state-owned agricultural and forest farms. Subsequently, the Government tried to reorganize them more effectively. 

2. Challenges

There has been no legal basis for the equitization, merging, sale, contracting and leasing of enterprises. To date, policies of restructuring SOEs have mainly taken the form of the Party’s resolutions and the Government’s directives. In a number of countries around the world, in order to transform SOEs, there are laws on privatization. Vietnam’s Law on Enterprises only stipulates mergers in a general way. It does not clearly regulate the reorganization of SOEs as joint stock companies or other business models. Such reorganization has been mostly stipulated in by-laws, which are far from legally binding.

There have been no unified laws on the principle or scope of state investment in SOEs or any authority to make such investment, which is aimed at separating state management from day-to-day management at such enterprises. Existing regulations are scattered amongst some articles of laws, decrees, and notices and are infeasible. For instance, Paragraph 1 of Article 8 of the Law on Investment stipulates that budget investment in economic organizations must be made through SCIC. However, such investment has been made by the government represented by the Prime Minister, line ministries, provincial people’s committees, and members’ councils and chair people of companies in accordance with Decrees 132/2005/ND-CP of 20 October 2005, 86/2006/ND-CP of 21 August 2006, 25/2010/ND-CP of 19 March 2010, and 99/2012/ND-CP of 15 November 2012(7). Obviously, it is necessary to legalize such by-laws in order to facilitate the restructuring of SOEs, especially in anticipation of the ASEAN Economic Community and Trans-Pacific Partnership (TPP) Agreement. Once Vietnam has laws on state investment in enterprises, the country will be able to fulfill similar commitments to other countries, where SOEs only operate in certain areas or regions with especially difficult socio-economic conditions or those of strategic security and defense importance regulated by law.

The equitization of SOEs in the 2014-2015 period has intensified. The Conference on the Restructuring of State-Owned Enterprises on 18 February 2014 decided that 432 SOEs, including a number of medium- and large-size ones, had to be reorganized according to the approved plans. In addition, the Government asked relevant ministries, industries and local administrations to include SOEs that the state not need to take a dominating interest to the list of enterprises to be equitized, according to new criteria for categorizing SOEs.

According to the Committee for the Reorganization and Development of Enterprises, by July 2014, 76 enterprises had been reorganized. Of them, 55 had been equitized. From the present until the end of 2015, on average, ministries, industries and local administrations must reorganize more than one enterprise a day. This is a huge challenge. Many are worried that such massive equitization may lead to quantity rearrangemnet rather than quality. In the meantime, there remain a number of problems, including the fact that SOEs, especially those with monopolies, and business directors who are approaching retirement tend to be afraid of equitization. At the other extreme, some directors wish to equitize their enterprises as fast as they can and in a way most beneficial to themselves or their teams so that they can continue to manage their reorganized enterprises over the long term. State budget benefits as a result of equitization are not guaranteed, and there is overlap between central and local management where provincial SOEs, once equitized, must pay their interests to central management represented by SCIC. Also, there remain issues with the determination of the value of enterprises, especially in land use rights, locations and brands.

The Government has set a goal of withdrawing between 40 and 50% of state capital, which is estimated at approximately VND 790 billion, by 2015 through the equitization or sale of parts, or all, of the state’s shares in industries where it does not need to have a dominating interest. This is a method of redistributing resources amongst the state sector and others. This is expected to provide local and international investors with opportunities to contribute capital to SOEs, especially to those of a large scale and those that have a dominating share in the finance and banking market, or provide important products or services. However, because the country’s macro-economic situation, particularly its financial and stock markets, remain unstable or stagnant, the challenge lies in selling a large number of SOEs’ shares in an effective manner that does not waste the state’s assets.


In order to carry out the tasks set by the SOEs restructuring plan, it is necessary to focus on the following issues:

Firstly,related mechanisms and policies must be improved. At its 8th Conference, the 13th National Assembly approved three laws: the revised Law on Enterprises, the Law on the Management and Use of State Capital Invested in Enterprises, and the revised Law on Investment. Accordingly, ministries need to review and revise their existing legal documents and issue new ones guiding the implementation of the new laws. The Ministry of Planning and Investment must urgently complete drafting regulations on the administration of state-owned one-member limited liability companies and the evaluation of the rights and duties of the state as the owner of SOEs. The Ministry of Finance is to provide enterprises that have gone public, but have yet to launch IPOs, with instructions on how to decide on prices of shares to be sold to employees and trade unions. The Ministry needs to deal with issues related to the determination of the value of enterprises that are going public. Such issues include: determination of long-term investment, potential value, depreciation of assets, and redetermination of financial investments when enterprises become joint-stock companies. The Ministry of Agriculture and Rural Development should lead the development of a general plan for the reorganization of agricultural and forestry companies.

Secondly, based on the SOE restructuring project for the 2014-2015 period approved by competent bodies, relevant ministries and provincial people’s committees are to accelerate the reorganization of SOEs and their changes of ownership in accordance with the categorization of SOEs by the Prime Minister’s Decision 37/2014/QD-TTg of 18 June 2014. At the same time, methods must exist to deal with difficulties arising from reorganization so that the project can be completed on schedule. In particular, leaders of ministries, industries, local administrations, and state-owned economic groups and corporations must be held ultimately responsible for the restructuring, reorganization and equitization of SOEs and withdrawal of state capital from them.

Thirdly, SOEs must have plans for reducing costs and supervising the process of its implementation. They must also reduce product prices while increasing profits in order to preserve and increase their capital resources and contribute more to the state budget. They must coordinate with commercial banks, Vietnam Asset Management Company (VAMC) and Debts and Assets Trading Company (DATC) to restructure their debts and deal with their bad debts. The usual perception of banks as enterprises’ shields or creditors must change. Using their expertise, experience and financial resources, banks should provide support for enterprises so that they can develop.

Fourthly, through SCIC, the Government should take a more active role as a strategic investor. In order to act on behalf of the state as the owner of state capital in enterprises and promote the Government’s role as a strategic investor, SCIC needs to improve its administrative capability proactively in order to participate effectively in the management, investment and trading of state capital.

Finally, it is necessary to closely supervise ministries, industries, local authorities and enterprises in their implementation of respective tasks. Periodical reports on their performance must be written to develop solutions to issues related to the restructuring process.

Vietnam is speeding up its economic restructuring and changing its growth model in order to establish a market economy with an advanced legal system, ensuring equality and healthy competition amongst all types of enterprises. At the same time, the country is preparing to join the ASEAN Economic Community and TPP. Therefore, effective equitization of SOEs is important to the country’s integration goals regionally and in world economics.


Dr. Ngo Van Vu

Social Sciences Journal

Vietnam Academy of Social Sciences


Related Articles

Contact us