In Vietnam, Growing Fears of an Economic Meltdown
In Vietnam’s major cities, a once-booming property market has come crashing down. Hundreds of abandoned construction sites are the most obvious signs of a sickly economy.
A senior Vietnamese Communist Party official, speaking in the ornate drawing room of a French colonial building, compared the country’s economic problems to the market crash 15 years ago that flattened many economies in Asia. “I can say this is the same as the crisis in Thailand in 1997,” said Hua Ngoc Thuan, the vice chairman of the People’s Committee of Ho Chi Minh City, the city’s top executive body. “Property investors pushed the prices so high. They bought for speculation — not for use.”
Investors are skeptical of the government’s economic management and question the reliability of statistics. The country’s central bank says borrowers have stopped paying back 1 out of every 10 loans in the banking system, but Fitch Ratings said the percentage of bad loans might be much higher.
If the 1997 crisis was often blamed on “crony capitalism,” Vietnam’s problems could be described as crony capitalism with a communist twist. State-owned companies are stacked with friends and allies of the Communist Party hierarchy. “The state is being manipulated by people within the state to make money,” said Jonathan Pincus, the dean of the Fulbright Economics Teaching Program in Vietnam. “Getting the Communist Party out of the management of these companies, that’s what is required,” he said. “I don’t see that on the table.”
(...) Like property bubbles in other parts of the world, investors in Vietnam took advantage of free-flowing credit to construct buildings with the hopes of flipping them for a profit. One key difference is that some of the largest property speculators in Vietnam are state-owned corporations with top connections in the Communist Party and access to cheap money. Those companies are now grappling with unsustainable debt levels, or in the case of Vinashin and Vinalines, two large government conglomerates, flirting with insolvency.
(...) There is so much excess supply of office space in Ho Chi Minh City that rents in the most desirable neighborhoods are half the level of three years ago, said Nguyen Duy Lam, the director of Pacific Real, a construction and real estate company. In the hopes of drawing more foreign buyers, officials in Ho Chi Minh City have submitted a formal proposal to the central government to open up the property market to overseas Vietnamese, according to Mr. Thuan, the Communist Party official.
For now, though, real estate agents like Mr. Lam report that activity is freezing up. “Everyone wants to sell, but they can’t, even if they lower the price,” Mr. Lam said in an interview on the roof of a hotel in Ho Chi Minh City. “There are no customers.”
