Vietnam: Yearly Roundup and Key Issues to Watch in 2021

The year 2020 began with a strong sense of optimism in Vietnam. The government aimed to continue robust economic growth following 2019’s 7% GDP expansion, while the tourism industry was coming off a record year and seemed poised for further improvement.

Enter Covid-19

Then, over the Lunar New Year holiday in late January, the Ministry of Health confirmed the first Covid-19 infections in the country, two Chinese nationals who were visiting Vietnam.

The government began an aggressive, extremely effective pandemic response plan focused on strict entry regulations, which saw all inbound flights suspended by late March, targeted testing, and rapid contact tracing when needed. The country also suspended all flights from mainland China on 1 February, a swift and critical response that likely proved to be one of the most important decisions executed to halt the spread of the disease early on in Vietnam. Undoubtedly, Vietnam learned and drew from its experience in dealing with the SARS virus in 2003.

Vietnam’s tourism industry saw the most immediate impact of this strategy, with foreign tourist numbers dropping to zero for some time. As 2020 came to an end, the General Statistics Office announced that only 3.83 million international arrivals were recorded for the year, compared to 18 million in 2019.

However, the success of the containment strategy in terms of public health meant that a hard nationwide lockdown was never necessary. A month-long ‘national social distancing’ campaign ran through parts of March and April, which saw many non-essential businesses temporarily close, but key manufacturing and export industries continued largely uninterrupted.

As of now, Vietnam has well under 2,000 recorded Covid-19 infections, many of them imported and quarantined upon arrival, and just 35 deaths related to the virus.

Free Trade Agreements

A string of major free trade agreements also came into force in 2020, providing a further boost to Vietnam’s economy. These included the landmark EU-Vietnam FTA (EUVFTA), which will eventually zero out duties on 99% of all goods traded between the two parties, and the massive Regional Comprehensive Economic Partnership (RCEP), a 15-nation trade pact that covers roughly 30% of global GDP.

The Vietnamese government also inked a bilateral FTA with the United Kingdom, which will maintain trade ties between the two countries under the same terms as the EUVFTA.

These deals continued Vietnam’s policy of trade multilateralism, as the country is also party to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTTP), which links major Pacific Rim economies except for China and the United States.

Trade Deficit and Gas Deals with the US

Vietnam had a particularly noteworthy trade year with the US, in part thanks to the actions of President Trump.

As manufacturing has shifted to the Southeast Asian nation thanks to the trade war with China, the US’ trade deficit with Vietnam has exploded. Through the first seven months of 2020, this figure stood at US$34.8 billion, compared to US$54.5 billion in all of 2019.

In response, Vietnam has inked a number of multi-billion dollar natural gas deals with American corporations including ExxonMobil and AES Corp. These deals cover both the import of LNG from the US, the construction of LNG power plants in Vietnam, and the development of gas fields in the disputed South China Sea, known as the East Sea locally.

However, these moves haven’t spared Vietnam from President Trump’s transactional view of trade, and in October the US Trade Representative announced a two-pronged Section 301 investigation into allegations of currency manipulation by Vietnam’s central bank, and alleged exports of furniture made from illegal timber to the US.

In mid-December, the US government officially labeled Vietnam a currency manipulator, while a decision on illegal timber product exports has not yet been reached. It is unclear whether or how Vietnam may be punished as a result, but a Section 301 investigation is what led to the initial round of punitive tariffs on China that initiated the cross-Pacific trade war.

Renewable Energy Boom

2020 was a big year overall for renewable energy, which has become a fast-growing sector thanks to smart government policies. Vietnam is now the largest solar energy producer in Southeast Asia, while the country’s long coastline is also drawing investment in wind energy development.

A number of Thai corporations have invested in renewable power plants in recent months, while the United States Agency for International Development (USAID) is partnering with Vietnam Electricity (EVN), the national power monopoly, to develop rooftop solar systems.

Taken together, the above economic developments, combined with one of the world’s most effective pandemic responses from a public health perspective, allowed Vietnam to achieve positive GDP growth of 2.9% on the year, according to  the General Statistics Office of Vietnam.

While this is the lowest rate the country has seen in 30 years, it is among the highest in the world this year, and positions Vietnam well for 2021. The processing and manufacturing industry grew by almost 4%, while the services and agricultural sectors both expanded as well, partially making up for the lost tourism year.

Foreign direct investment remained a key economic driver as well, with the Ministry of Planning and Investment reporting US$28.5 billion in FDI through December 20, equal to three-fourths of the amount from the same period in 2019.

Processing and manufacturing accounted for almost 50% of this total, indicating the continued strength of industry in Vietnam. Some of the world’s most prominent manufacturers, particularly of high-tech products, have either already established a presence in Vietnam, or are planning to in the near future. These include suppliers of Google and Apple, while Samsung maintains a manufacturing presence worth tens of billions of dollars.

Stock Market Rollercoaster Ride

Vietnam’s stock market surged in the last half of the year, ending a roller coaster ride as the Covid-19 pandemic sent stock prices in March to their lowest levels in several years before making an impressive come-back. The VN-Index closed at 1,103.87 points in the last session of the year, up 14.86 percent over 2019. We expect the market will continue to out-perform in 2021 on the back of strong fundamentals, political and economic stability, stable inflation, and continued inflows of foreign direct investment.

Looking Ahead into 2021

As we move into the New Year, the most immediate major news to watch – barring a coronavirus flare-up – will be the Community Party of Vietnam’s (CPV’s) national congress, which begins on January 25 and will see the selection of new leadership for the next five years.

The single-party government has four top positions: president, prime minister, CPV chief, and chair of the legislative National Assembly. Currently, Nguyen Phu Trong holds the position of both president and CPV chief, an extremely rare arrangement brought about following the death of President Tran Dai Quang in 2018.

Trong has turned into a very powerful leader, and has spearheaded a broad, high-level anti-corruption drive over the last several years.

Trong is 76 and has been dogged by rumors of poor health for the last two years, including a potential stroke, and he is not expected to maintain his current roles in the new government. Tran Quoc Vuong, currently a standing member of the party secretariat and a close associate of Trong, is a front-runner to become the new party chief, while current Prime Minister Nguyen Xuan Phuc may also be a candidate.

Phuc has been an effective prime minister, operating as the public face of the government while Trong has made limited public appearances. Phuc is also considered pro-business, and has avoided any scandals.

Personnel moves are a closely guarded secret in the run-up to the party congress, and it is difficult to guess who will assume power given how much closed-door infighting occurs before and during these events.

Given his power and standing, Trong will likely play a large role in choosing his successor, and it is worth noting that every CPV chief has come from northern Vietnam, while Phuc is from the central province of Quang Nam.

Whatever the result of the party congress, it is widely assumed that new leadership will generally maintain a similar path, and several major challenges are to be addressed through the coming year.

The Pandemic

The COVID-19 pandemic will present a challenge for Vietnam’s new government from day one, and a huge question for 2021 will be when the country starts to relax entry restrictions. It is highly unlikely that mass international tourism will return anytime soon, perhaps not until 2022, but there is demand among businesspeople, investors, and people wishing to move to the country for work.

Currently, only pre-approved experts and managers are allowed in on expensive charter flights, while repatriation flights for Vietnamese nationals continue as well. Two weeks of quarantine are mandated for all arrivals, and there has been no indication of when this may change, or how growing vaccination campaigns in some countries will be taken into account.

Several Vietnamese companies are working on domestic Covid-19 vaccines, and the most promising candidate has entered the initial human trial phase, but it is not expected to be ready for a mass rollout until 2022. It remains unclear as of now what kind of access Vietnam will have to international vaccines, but the health ministry has said that it is in talks with the US, China, Russia and the UK regarding their vaccines.

Until the global vaccine picture becomes clearer, it is likely that the government will continue its pandemic strategy given its evident success thus far.

US Ties

The US will welcome new leadership at the same time as Vietnam, and it remains to be seen how the incoming Biden administration will handle the ongoing Section 301 investigations. It would be surprising if the President would take punitive action against an increasingly important economic partner and counter to China, but this should be closely watched.

President Trump is quite popular among the general Vietnamese public thanks to his anti-China rhetoric, but Vietnamese officials will likely welcome a more traditional, multilateral American president, particularly in the wake of the USTR threats. Vietnam hasn’t given up on the US joining the CPTPP, which had to be reworked after Trump left the original Trans-Pacific Partnership.

Continued expansion of Vietnam’s manufacturing sector will also depend in part on how the the President will addresses the trade war with China, as that has been a major driver of shifts to Vietnam.


Power generation, from thermal plants to LNG and renewables like solar and wind, will also be a big 2021 issue, as the Ministry of Industry and Trade predicted in 2019 that energy shortages would begin this year. Energy supply has been stable for some time, but continued robust economic growth has led to surging residential and industrial power demand.

That forecast came before a huge influx of solar power, but new traditional power plants have faced extensive delays. It will be interesting to see what steps the government takes to shore up power supply, as any kind of significant shortage would do serious damage to Vietnam’s image as a reliable manufacturing destination.

China Relations

The energy issue is linked to simmering tensions with China too, as Vietnam’s giant northern neighbor has placed constant pressure on oil and gas development in the disputed South China Sea. This has hampered Vietnam’s energy sector, creating a keen problem when combined with ongoing struggles to finance planned thermal power plants due to the global decarbonization movement.

In an effort to diversify power supply, EVN has inked a number of deals with Laos for energy from hydropower plants in that country, though those developments pose a grave threat to the vital Mekong Delta.

The new national leadership can expect China to remain a big issue through 2021 and beyond, particularly as it grows more assertive in the South China Sea and makes diplomatic, economic and military inroads with neighbors such as Cambodia.

The government will have to find a way of maintaining a balance between not angering the vastly more powerful China, and not angering the Vietnamese public, which is stridently anti-China and will not hesitate to react angrily to any perceived kowtowing. Previous leadership transitions were perceived as hinging between a pro-China camp and a pro-US camp, but recent years have inexorably moved Vietnam closer to the US.

The Economy

While the international tourism sector will likely remain on life support for most, if not all, of 2021, the overall economy is expected to continue to perform well, barring any unforeseen disasters.

The government has set a GDP growth goal of 6.5%, which is still lower than what was achieved in 2019, but would be a healthy rebound as the world tries to break out of the pandemic doldrums.

This is one area where new leadership will probably mean little change, as Vietnam can be expected to remain open to foreign investment while also advocating for the growth of domestic corporations such as Vingroup, which aims to launch cars under its VinFast label and smartphones under its VinSmart brand in the US this year. These would be unprecedented steps for a Vietnamese company.

Access Asia Group expects that that Vietnam will see a major upsurge in foreign investment in 20201 as global companies diversify their supply chains and manufacturing facilities out of China, while Vietnam’s Covid-19 containment success – among the most successful in the world in our view – will accelerate this shift.