However, in today’s fast paced high-tech globalization, the City badly needs more investment, finance and technologies to keep up with the latest trends, and be recognized as a financial center (FC) in the region and in the world.
Other cities fast catching up
At present HCMC leaders envision to make the City into an international financial center in the Southeast Asia region, even though at present HCMC is making slower progress than other cities and provinces in the country and falling far behind many of the newer cities in the region.
Moreover, realistically a huge gap lies between the actual situation and a strategic vision. Looking outside the country, HCMC is relatively far behind regional cities like Seoul, Shanghai, Kuala Lumpur and even Bangkok. Within the country, Hanoi is narrowing the gap with HCMC, while other cities and provinces like Da Nang, Binh Duong or Quang Ninh are emerging as strong contenders as well, even providing an inspiration to other areas. Meanwhile, the country's GDP remains almost unchanged, showing that the growth rate of HCMC is not much higher than that of other cities and provinces.
Additionally, HCMC budget withholding rate has fallen sharply from 26% in the 2007-2010 period down to 18% in the 2017-2020 period. This insufficient capital has slowed down the economic growth, leaving the infrastructure in poor condition, and the living environment polluted and unsafe. These factors together have considerably reduced the City's advantages as an attractive place for living, trading and making investments, leaving a negative image on the City's effort to become a regional and international FC.
The present situation requires HCMC to choose an appropriate development strategy to significantly increase productivity, promote economic growth, raise citizen standards of living, and strengthen its financial capacity and pivotal role in Vietnam as well as the entire region. HCMC's strong growth will provide a powerful drive for the whole of Southern Vietnam, prompting the country's development in the domestic sector and on the international arena.
Part of Central Government Development Plan
Resolution 16-NQ-TW (2012) states that HCMC is a special city and an important center for economic, cultural, educational, scientific and technological activities, connecting national and international issues, and creating an indispensable attraction and drive for significant growth for Southern Vietnam and the entire country.
The Resolution offers a plan for the development of HCMC until 2020 as “essential to making HCMC a modern and civilized City with a special role as leader in industrialization and modernization, making huge contributions to regional and national development. The City would gradually become a larger center for economic, financial, commercial, scientific and technological activities for the whole country as well as Southeast Asia, making Vietnam an industrialized country by 2020.”
Decision No. 2631/QĐ-TTg issued by the Prime Minister on 31 December 2013 set the goal to make HCMC a vibrant financial hub in Southeast Asia providing financial, credit and banking services as major sectors in nine other service sectors that the City would focus its efforts on for substantial development.
Resolution at the 10th meeting session of the HCMC Party Committee for the 2015-2020 term introduced a plan to develop HCMC into one of the major centers for economic, financial, commercial, scientific and technological activities in Southeast Asia.
Resolution No. 19-2017/NQ-CP issued by the Government on 6 February 2017, shows plans to increase the country's competitiveness till 2020 by making the financial market one of the twelve major goals meant to improve the business environment in Vietnam.
It is obvious that Party leaders and Government officials recognize HCMC as a special City and plan to make it the country's leading center for economic and financial activities. It is all based on the City's actual opportunities and potential for growth in the past, present and the future. HCMC's position is even more important in its ties with the seven neighboring provinces of Ba Ria-Vung Tau, Dong Nai, Binh Duong, Binh Phuoc, Tay Ninh, Long An and Tien Giang.
Advantages and disadvantages
Although HCMC makes up just about 9.36% of the country's population and covers only 0.63% of the country's area, it has always been the country's leader in economic activities. In 2018, the City made a contribution of about 24% GDP and attracted 22% of FDI in the country.
With regards to the banking and non-banking services, HCMC raised 27.2% of nationwide capital in 2018. The loan balance in HCMC made up 28.1% of the entire economy. In the capital market, the capitalization value at HCMC Stock Exchange (HOSE) made up 93.5% of the national market and 57.4% of the country's GDP.
HCMC's important position in the country's economy means the City and Central Government must make careful decisions when choosing an appropriate development strategy to promote rapid growth not only in the South but also across other regions of the country. Therefore, HCMC must play the important role of an FC and provide necessary products and services to boost the economic development of the whole City and entire country, and gradually become a vibrant FC in Southeast Asia and the world.
Human resource always plays a key role in any field. Skilled and professional work force is certainly an essential part of any FC. In addition to the quantity and quality of human resource, flexibility in the labor market is also an important element. This is one of the weaknesses of the Paris FC, by comparison with the ones in London and New York. Competence of the English language among employees is not just essential but vital for an international FC.
An adequate supply of qualified and high-quality human resource always requires the development of an appropriate educational system. The quality of the living environment is also an important factor in attracting the right human resource for the functioning of a financial center.
A secure environment for effective business activities is important for an FC to attract major national and international institutions to pour in investments and manage operations successfully. The first requirement is obviously a stable political situation for an FC. It is impossible to successfully set up and run an FC in a place where there is war or riots or ongoing conflicts.
In addition, suitable policies and regulations on taxes and duties are necessary before an FC can even begin to attract major financial companies and institutions. Financial investors and organizations care a lot about minimum expenses and legal procedures. An effective court system that applies the common laws is always a great advantage for an international FC. It is also necessary to provide a suitable soft infrastructure, advanced information technology and secure web services with broadband and stable connections.
HCMC can compete on international stage
As far as competitiveness is concerned, HCMC and Hanoi are at the bottom of list of twelve cities in the region, in terms of commercial attraction and economic size, although HCMC still stands above Hanoi in both terms.
The 2018 report by A.T. Kerney on global cities shows that HCMC was ranked at 80th position, the lowest among other competitors in the region. A.T. Kerney believes HCMC’s rank could go down to 83rd position in the future. However, the report also indicated some hope for HCMC when it predicted considerable fall of such cities like Jakarta, Mumbai, Shanghai, Bangkok and Hong Kong.
However, when there is fluctuation in the market, Vietnam has certain strengths and if government authorities really try to strive for improvement in legal regulations and competitiveness, the country can gradually gain a better foothold on the international stage. For instance, Abivin, a Vietnamese startup, has recently come out on top of many companies from more than 40 countries to win the 2019 Startup World Cup.
The competition saw participants from around the world, including high-tech companies from developed countries like Japan, Canada, the US, India, China, Singapore and South Korea. It indicates that Vietnam has potential for human resource in the IT arena.
HCMC can meet international standards
Vietnam’s financial system is based primarily on the banking system. According to a 2018 report by the National Committee for Financial Supervision, the total assets of Vietnamese financial institutions were about 203% of GDP, with 95.5% from credit institutions. Insurance companies made up 3.4% and securities companies and funds management companies provided 1.1%.
With positive developments from late 2017, the capitalization value of the stock market in Vietnam was about 75% GDP in late 2018 while government bonds made up about 27% GDP.
Vietnam’s stock exchange development has been pretty positive with lots of M&A among domestic companies and some foreign investors. In September 2018, FTSE Russel included Vietnam in the list of markets that could be lifted to Secondary Emerging Markets. Apart from the traditional products of stocks, HOSE now has other products like corporate bonds, local government bonds, ETF, derivative securities since 2017 and covers warrant transactions since early 2018. However, the market size is still small. The bond balance in late 2018, for example, was just about 7% GDP, higher than Indonesia (2,9% GDP) and the Philippines (6,5% GDP) but lower than the average of other regional countries estimated at 21% GDP.
HCMC has not been considered an International or Regional FC. However, the GFCI ranking over the past decade shows that there have been major changes. Some FCs like Beijing and Shanghai have been going up while other FCs like Taipei, Seoul, Mumbai and Manila have been going downhill. This suggests that HCMC can hope to appear on the map of international FCs, and be known as a capable financial center that can meet international standards and make a strong mark on the international stage.