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Vietnam should rationalize policy to ride on new FDI wave

The new wave of FDI is a chance for Vietnam to deepen its industrialisation by encouraging the development of supporting industries.

The government should introduce new FDI projects on a selective basis, improve infrastructure and offer incentives to induce import substitution for high-tech components, parts and other intermediate industrial products. A list of the products that are particularly encouraged should be announced to stimulate the development of these industries.

Most FDI in Vietnam to date have been by wholly foreign-owned firms, with weak linkages to the local sector.

The new FDI policy should aim to correct this division. Local firms should be encouraged to create vertical linkages between FDI assemblers and local suppliers of intermediate goods. Joint ventures between foreign and local firms should also be encouraged. The government should not, of course, force foreign firms to set up joint ventures. Rather, local firms should be nourished and strengthened so that they are selected by foreign firms to be partners.