Once known for political stability, albeit of the one-party, authoritarian sort, the Communist Party of Vietnam (CPV) is gaining a reputation for unpredictability. It has sacked two state presidents in two years as part of a vast anti-graft campaign that has gutted much of the bureaucracy since 2016. The chair of the National Assembly was allowed to resign last month. The Politburo has lost four top members in the past 18 months.
Ahead of the next CPV National Congress in 2026, when future personnel decisions will be announced, the securocrats have taken over. The only viable candidates to succeed 80-year-old Nguyen Phu Trong as party chief are Prime Minister Pham Minh Chinh and Minister of Public Security To Lam, both former police generals.
“Whoever wins the race… the country will have taken a turn towards becoming a literal police state,” Bill Hayton of Chatham House wrote last week. Indeed, Directive 24, a decree leaked earlier this year, instructs party members to limit contact with foreign organizations and get tougher on “peaceful evolution” wherever the security apparatus thinks it sees it. Repression has intensified since 2016.
This shouldn’t be surprising. The CPV cares about only one thing: regime survival.
First, graft-busting is a way for the Party to attain legitimacy not attached to economic growth. By the late 1990s, no one in society cared about socialism. By the end of the 2000s, the CPV was no longer the arbitrator of nationalism – in fact, many people now regard it as a traitor for having sold out to the detested Chinese.
That left just economic growth as a basis for legitimacy. Yet the rentier attitude of previous communist administrations, who saw corruption as a way of binding the party together and enriching themselves, so infuriated the ordinary Vietnamese, that graft became an existential concern for the Party.
For Trong, like Ho Chi Minh before him, the Party had to be a “moral” force; it had to be respected by the people for reasons other than their own economic self-interest.
Second, anti-corruption has allowed the CPV to put a check on the private sector, which risked becoming a political threat. The wealth of the oligarchs had made them too independent. The middle classes became more demanding of political freedoms. Now, the private sector is running scared and readily accepts the Party’s diktats.
Third, graft-busting provided a means for factions to purge their rivals – and the securocrats are better at this sort of thing than the university-educated economists.
The conversation being had now is whether this has weakened the economy. Some say it has. Bureaucrats now defer important decisions over fear of being reprimanded for losing state money. Public investment has declined. Some investors are fretting over the purge of economically-competent ministers and party officials.
Some say it hasn’t. The anti-graft campaign has improved the ease of doing business, improved investor confidence, and cleared out key sectors of (some of) the rot. Yet, the CPV could have done all that without also becoming more repressive and purging itself of all but the securocrats. It didn’t because the Party knows the future might not be pretty.
The $12 billion corruption scandal this year involving Truong My Lan, who was sentenced to death, has raised concerns about just how toxic the financial system is. The property sector remains uncertain after a major wobble last year. Vietnam is overly reliant on energy imports; it has even shut off energy to factories.
Vietnam will join Singapore and Thailand as an “aged” society in the early 2030s when more than 14 percent of its population will be over 65. Unlike Thailand, however, demographic changes won’t inflict a major shock on its workforce. By one estimate, Thailand will lose 400,000 working-age people from its population every year between now and 2050. Vietnam will lose 200,000 over the same period.
Even still, Vietnam has passed its demographic peak, which should be a concern when your biggest selling points are scale and low labor costs (half of China’s), and when your productivity rates are among the weakest in Asia: $10.2o per hour in 2021, compared to $13.5 in China, $15 in Thailand, and $12.9 in Indonesia.
Vietnam’s demographics will begin deteriorating after 2050 with fewer people entering the workforce. The number of old people will surpass the number of children by 2040.
Indeed, Vietnam is one of the top 10 fastest-aging countries globally. In 2020, over 65s accounted for 8 percent of the population. In 2050, they’ll make up a fifth. Or consider the old-age support ratio, which compares the number of people aged 20-64 (who pay their taxes and grow the economy) to those aged 65+ (who don’t and sap other people’s money). In 2010, it was 9.2. But it fell to 7.3 in 2020 and will fall sharply to less than 3 by 2050.
Yet state pensions remain paltry; just 40 percent of the elderly are covered. Much of the healthcare burden falls on households. Out-of-pocket health expenditure remains much higher in Vietnam than in its aging peers. Around 40 percent of all healthcare expenditure is covered by individuals, not the state, compared with a tenth in Thailand.
Moreover, the Vietnamese are currently far poorer than their peers. GDP per capita is less than $4,200, compared with $7,000 in Thailand and almost $12,000 in Malaysia. The IMF has warned that Vietnam is at risk of “growing old before it grows rich.”
Hanoi will have to increase taxes massively to pay for pensions and healthcare. Yet government revenue as a percentage of GDP remains low. It was just 18.5 percent in 2020, down from previous years. And it was a smaller percentage than in Malaysia, Thailand, and the Philippines, according to IMF data.
That means the state will have to step up. But that means more taxes on workers who are denied a say in how the government functions and on businesses that like their tax exemptions. And it means workers will have to put aside more funds for grandma and grandpa, meaning less money for them.
At the same time, the government needs to boost productivity to get on with stalled infrastructure projects, and protect its supply chains from other countries that want a slice of tech manufacturing.
There are also existential concerns beyond Hanoi’s control. China’s economy is collapsing. In the short term, that means more off-shoring from China to Vietnam. However, China accounts for a quarter of Vietnam’s trade. An economic disaster in China would spell societal and political chaos on Vietnam’s northern border.
Then there’s the United States, which is increasingly unsure whether it wants to defend free trade for everyone else in the world. A potential second presidential term for Donald Trump – who once called Vietnam the “single worst abuser” of America’s trade system – should spark fears that Vietnam could be slapped with tariffs and anti-dumping sanctions, not least because so many Chinese-made goods are pouring through Vietnam and then being re-exported to the West.
Rather than being hubristic about the economy, the Communist Party is probably fearful.
It knows it has just over two decades before its demography starts to bite and less than 20 years to sort out some major problems with its financial markets, productivity rates, and infrastructure. Maybe it will succeed. But maybe it won’t.
What if it cannot provide sufficient pensions or healthcare to the elderly? What happens if productivity lags and the workforce becomes uncompetitive? What if more people start asking for representation in return for taxation?
Failure will bring new, potentially far more serious threats to regime security. It makes sense, then, for the CPV to batten down the hatches and insulate itself before a potential deluge; for the Party to create a source of legitimacy that isn’t just sky-high growth rates. But this will make the Party less able to solve the problems threatening its security.