The impacts of foreign direct investment on vietnams economic growth,graduation thesis

STATE BANK OF VIETNAM MINISTRY OF EDUCATION AND TRAINING BANKING ACADEMY FOREIGN LANGUAGE FACULTY -***** - GRADUATION THESIS THE IMPACTS OF FOREIGN DIRECT INVESTMENT ON VIETNAM’S ECONOMIC GROWTH Student: Nguyen Tuan Manh Student code: 16A7510183 Class: K16-ATCA Supervisor: Mrs Nguyen Thanh Nhan (M.A.) Hanoi, May 2017 DECLARATION I hereby declare that this thesis is the product of my own work and effort It has not been applied or posted for any degree or previously submitted anywhere for any commercial or personal purpose All the sources I have used have been indicated and acknowledged by means of completed references Signature Nguyen Tuan Manh ATCA-­‐K16                                                                                                                                                                                                                Nguyen  Tuan  Manh                                                                               ABSTRACT The research work is a critical evaluation of the impacts of Foreign Direct Investment on Vietnam’s economic growth In this research work, the fundamental impacts of FDI on the economy have been discussed The situation of economic growth including growth model and structure has also been discussed in detailed Also, the investment structure and scale have been analyzed In the following section, the impacts of Foreign Direct Investment on economic growth in Vietnam has been deeply analyzed including the contribution of FDI to economic growth, the contribution of FDI to employment opportunities and even the technology diffusion and transfer Otherwise, the contribution of FDI to the national treasury cannot be underestimated Since the important and irreplaceable source of FDI for the Vietnamese economy, it is necessary to have an in-depth and comprehensive study on the status of FDI attraction and use of FDI in the past time as well as determine the appropriate level of FDI attraction to maximize the benefits from this source Derived from this reality, the research topic “Impacts of Foreign Direct Investment on Vietnam’s economic growth” is implemented ATCA-­‐K16                                                                                                                                                                                                                Nguyen  Tuan  Manh                                                                               DEDICATION I sincerely dedicate this graduation thesis to my beloved family and my precious friends for their tremendous spiritual support and encouragement ATCA-­‐K16                                                                                                                                                                                                                Nguyen  Tuan  Manh                                                                               ACKNOWLEDGEMENT I feel great happiness in forwarding this research as an image of my sincere efforts The success of this research reflects my work during my academic year I extent heartfelt gratitude and special thanks to Mrs Nguyen Thanh Nhan, Vice Dean of the Faculty of Banking, for her valuable corporation and for being the guiding star in achieving my goal I am also thankful to my family and friends, who have been my side the whole time Their love, belief and support are one of my biggest encouragements I also take this opportunity to thank and express ward wishes to all my lecturers in Banking Academy of Vietnam, their assistance and kind guidance that helped me out of all my queries and support during the run of this research This research has given me an insight to practical experience that will prove a boon to me in the near future Hanoi, May 2017 Nguyen Tuan Manh LIST OF TABLES AND FIGURES Table Number Table 2.1 Name of Table Economic growth speed in Vietnam and other nations in Asia during the period from 2005 to 2015 Table 2.2 Table 2.3 Periodical economic growth (%) Registered capital of top 10 FDI attraction destinations in 2005, 2010 and 2015 Table 2.4 Comparison of FDI structure in fields in 2005, 2010, 2015 Table 2.5   FDI capital in Vietnam by sectoral fields Figure number Name of figure Figure 2.1 Figure 2.2 Economic growth speed in Vietnam and the world (%) Investment capital in Vietnam’s economy by economic sectors in the period of 2005 – 2015 Figure 2.3 Contribution of FDI sector in total national GDP Figure 2.4 Number of employees in FDI sector Figure 2.5 Structure of FDI by partner investing in Source technology Figure 2.6 State budget revenues from FDI enterprises LIST OF ABBREVIATIONS Abbreviation Explaination CEEC Center and East European Countries CIEM Central Institute for Economic Management EU European Union FDI Foreign Direct Investment GDP Gross Domestic Production IMF Internation Monetary Fund MNCs Multinational Corporations NLP National Linkage Programme ODA Official Development Assistance OECD Organisation for Economic Cooperation and Development R&D Research and Development TPP Trans-Pacific Partnership UNCTAD United Nations Conference on Trade and Development USD The United States dollar VND Vietnam Dong WTO World Trade Organization TABLE OF CONTENT DECLARATION   ABSTRACT   DEDICATION   ACKNOWLEDGEMENT   LIST OF TABLES AND FIGURES   LIST OF ABBREVIATIONS   TABLE OF CONTENT   INTRODUCTION   Significances of the research   Problems of the research 10   Reseach objevtives 10   Source of data 10   The overview of the research 10   CHAPTER ONE: LITERATURE REVIEW 12   1.1 Introduction 12   1.2 Foreign Direct Investment 12   1.3 Impacts of Foreign Direct Investment on the economic growth 12   1.4 The empirical results of Foreign Direct Investment 13   1.4.1 Overview of foreign researches about attracting and allocating Foreign Direct Investment 13   1.4.2 Domestic studies on attracting and allocating FDI 15   CHAPTER TWO: CURRENT SITUATION OF IMPACTS OF FOREIGN DIRECT INVESTMENT ON ECONOMIC GROWTH IN VIETNAM 17   2.1 Economic growth in Vietnam 17   2.1.1 Growth model 17   2.1.2 Size and structure of growth 18   2.2 Investment structure and the role of Foreign Direct Investment 21   2.2.1 Investment structure in Vietnam 21   2.2.2 The scale of investment capital 23   2.3 The structure of Foreign Direct Investment 24   2.3.1 Provincial and economic regional FDI structure 24   2.3.2 Sectoral FDI structure 26   2.4 Impacts of FDI on economic growth in Vietnam 29   2.4.1 FDI contribution to economic growth 29   2.4.2 FDI contribution to employment opportunities 30   2.4.3 Technology diffusion and transfer 31   2.4.4 FDI contribution to state budget revenue 33   CHAPTER THREE: CONCLUSIONS AND RECOMMENDATIONS TO ATTRACT AND ALLOCATE FDI IN VIETNAM 35   3.1 Conclusion 35   3.2 Limitations of the research 35   3.3 Recommendations 35   LIST OF REFERENCES 41   INTRODUCTION Significances of the research For developing countries with internal capital accumulation in the economy as low as Vietnam, the attraction of external capital including Foreign Direct Investment is essential for development and investment FDI is seen as a blow in order to help Vietnam to escape from the vicious cycle of the economy For many years, Vietnam has maintained a high growth rate with an average growth rate of 6.25% in the period from 2005 to 2015 In particular, the FDI factor contributes to over 60% of GDP In fact, FDI has increasingly shown two sides in terms of the socio-economic status On the one hand, FDI has been an important supplement to the economy, meeting the need for investment and economic growth Attracting FDI has created new industries, which contributing to the economic restructuring of Vietnamand helping to improve Vietnam’s exports and infrastructure On the other hand, FDI causes many shorcomings such as environmental pollution, technology transfer backward, domestic enterprise encroachment Looking directly at the results of attracting and using FDI in Vietnam, it can be easily seen that the activities of attracting and using FDI in Vietnam have not achieved the expected results yet In the context of attracting FDI, there are conflicting arguments between both experts and policy imposers due to the duality of capital itself in the Resolution of the 12th Congress Party (January 2016) It has been through the directiong of the whole society in the period from 2016 to 2020 with a vision to 2030 in tandem with the goal of “comprehensive renovation, rapid and sustainable development and Vietnam will soon become basically a industrial-modern country, enhance the position and prestige of Vietnam in the region and the world” Because of the importance and irreplaceability of FDI in Vietnam’s economy, it is necessary to have an in-depth and comprehensive study on the status of FDI attracting and usage as well as the policy system.of FDI in Vietnam in recent time Go long with that, it is also important to determine the appropriate level of FDI attraction to maximize the benefits from this source Derived from this reality, the research topic “The impacts of Foreign Direct Investment on Vietnam’s economic growth” is implemented 27 industry, manufacturing and export orientation, direct contribution and export turnover and mechanical shift in exported goods in Vietnam Cummulatively, by June 2016, manufacturing industry topped investment capital and projects amounted to 170.7 billion USD, with 11,377 projects accounting for 56.27% of total registered capital This result is due to the priority policy of industry development in line with the industrial development strategy that Vietnam outlined for the period from 2020 to 2030 Meanwhile, the number of registered projects in the agriculture, forestry and fishery sector is still low and accounts for a very low share of total registered capital in the years Although these industries are included in the Special Preferential Sector List, many policy adjustments have been issued in the Investment Law 2000, 2005 and 2014, aimed at attracting FDI investment in raw materialareas, argo-processing and seafood but not generally positive This proves that the agriculture, forestry and fishery sector is still less attractive to investors and policy adjustment efforts are sufficiently stimulated to attract more FDI into the sector Contrary to the reality in agriculture, forestry and fishery, the proportion of service sector in this period tends to increase Up to the second quarter of 2016, the residential and food service sector, although the number of projects is not much, only 479 projects, but attracted more than 11 billion USD registered capital, accouting for nearly 4% of the total registered capital In addition, a sector is considered as a special service sector, attractive for FDI investors is the real estate business In the period from 2006 to 2008, this sector accounted for a large proportion of FDI inflows to real estate increased to 38.95% and then declined dramatically to 6.42% in 2011 This drop is thought to be due to the global financial crisis and high inflation 28 Table 2.5 FDI capital in Vietnam by sectoral fields No Number of Field projects Total registered capital (Million USD) Manufacturing industry 11,377 170,696.48 Real estate 537 52,793.75 109 12,642.64 Producing and allocating gas, water and air conditioners Construction 1,323 11,113.41 Shelter and food services 479 11,112.59 1,959 5,080.88 Wholesale and retail, motorcycle and automobile repair Communication 1,364 4,551.28 Mining 100 4,487.87 Warehouse transportation 557 3,984.16 10 Agriculture, forestry and fishery 524 3,566.05 11 Arts and entertainment 142 3,171.57 12 Specialism and science technology 2,052 2,474.43 13 Water supply and waste treatment 52 2,197.02 14 Medication and social security 113 1,769.15 86 1,356.43 15 Financial activities, banking and insurance 16 Other services 151 749.66 17 Education and Training 276 732.08 193 447.44 Hired household labor 3.54 Total 21,398 292,950.435 18 19 Administrative and supportive services (Source: Foreign Investment Department, 2016) 29 In general, although FDI inflows tend to attract the manufacturing and processing industries in line with the government’s guiding stance, capital investment is essentially focused on low-added value industries (such as textiles and footwear), available resources (such as mining and real estate) or inexpensive labor (such as assembly) but not focus on manufacturing industry to create key industries and sectors for the economy Especially, fomr 2005 to 2014, FDI concentration was high and increased in some polluting industries (cement increased by 6.9%, fertilizer increased by 15.22%, iron and steel were up to 19.61%) Meanwhile, investment in agriculture, forestry and fisheries is very limited Considering the criteria for attracting ideal FDI, according to the IMF, ideal FDI is FDI inflows into manufacturing, high technology and long-term investment Therefore, it is commented that Vietnam is taking steps backwards 2.4 Impacts of FDI on economic growth in Vietnam 2.4.1 FDI contribution to economic growth In the period of 2005 – 2015, the growth of FDI inflows has contributed significantly to the economic growth of Vietnam This is reflected in the contribution of the FDI sector in GDP is always above 15% Figure 2.3 Contribution of FDI sector in total national GDP 2015   72   18.07   2013   73   17.37   2011   72   15.66   2009   82   17.32   2007   83   17.43   2005   84   16.07   0%   20%   40%   60%   80%   State  Economy   Non-­‐state  economy   Foreign  Investment  Sector   100%   (Source: General Statistics Office, 2016) 30 According to the APO Productivity Survey (2015), the basic factor contributing to Vietnam’s economic growth is the fact that the investment capital contributes nearly 60%, the factor of labor contribution is about 20%, TFP productivity contributes 23% While the domestic capital of Vietnam is quite limited, it can be seen that the country’s economic growth depends heavily on the contribution of external investment capital, including FDI 2.4.2 FDI contribution to employment opportunities In recent years, FDI has created more employment opportunities for Vietnamese workers In particular, the number of employees working in FDI enterprises has increased over the years By 2015, the FDI sector generates more than million direct jobs, not including indirect employment in the service sector and supporting industries According to a survey by the World Bank (2010), one in direct labor forces will create jobs for two to three indirect employees Figure 2.4 Number of employees in FDI sector 2500   2000   1500   1000   500     2005   2007   2009   2011   2013   2015   Foreign  capital-­‐owned  labor  forces   (Source: General Statistics Office, 2017) Howver, the efficiency of job creation in the FDI sector does not match the potential Compared to the share of this sector in total social investment capital as well as the contribution to GDP, the FDI sector is still considered to generate less employment It is unofficial that these FDI enterprises are mainly oriented towards 31 labor-intensive industries, making use of cheap and plentiful labor resources so that they can create such employment This shows that the job creation of this area is very limited In addition, FDI enterprises, when investing in Vietnam, they want to minimize labor costs, so they mainly make use of cheap and unskilled labor According to the Ministry of Planning and Investment (2015), only 40% of workers are trainied at FDI enterprises, the remains have less vocational training 2.4.3 Technology diffusion and transfer In general, the level of technology transfer of the FDI sector is not equivalent to the role and potential It cannot be denied that the level of technology of the FDI sector is higer or equal to the advanced equipment available in the country and equivalent to that of other countries in the region Most FDI enterprises have adopted advanced management methods that are connected and influenced by the management syste of the holding company However, it can be seen that bringing modern technology into Vietnam and transferring technology are two completely different issues The low level of technology transfer is reflected in several aspects: Firstly, the number of technology transfer contracts in Vietnam is still limited According to the Association of Foreign Invested Enterprises (2015), technology transfer contracts are implemented in the form of transferring from the parent company to a subsidiary in Vietnam, but no contract is transferred from the FDI joint venture enterprises to domestic enterprises According to the Enterprise Competitiveness and Technology in Vietnam from 2010 to 2014 survey by CIEM (2015), if considering enterprises in the same industry and other sectors, about 80% technology transfer between domestic enterprises, technology transfer from FDI enterprises to local companies an other industries only less than 20% This can be considered as a major disadvantage for domestic businesses Secondly, investment partners from countries that hold source technologies are few Considering the structural investors shows that the projects of countries that own technology sources such as USA, Japan, EU are very little in total FDI projects into Vietnam By the end of 2015, these new partners accounted for more than 15% of registered capital; the remaining 75% were other investors, mainly in East Asia Therefore, if technology level or technology transfer is closely linked to investment 32 objects that own the original technology, it can be said that Vietnam has little access to modern technology through FDI Figure 2.5 Structure of FDI by partner investing in Source technology The  EU   The  United  States   8.09%   3.71%   Russia   0.37%   Japan   13.59%   Others   74.24%   (Source: Foreign Investment Department, 2016) Thirdly, the level of modernity and updating of technologies transferred to Vietnam is very low In fact, in many surveys conducted by FDI enterprises, the results show that many machines and technologies imported into Vietnam are not new technologies, they are old, even depreciated, and Vietnamese laborers are only responsible for the simple processes At present, on 5% of FDI transfer high technology, 15% is poor technology, backward and demand for common labor That also means that the value added from technology transfer of FDI is only about 20%, otherwise domestic value is also low at 10% Fourth, due to the low localization, the level of technology has been limited The localization rate in Vietnamses industries is also very low Considering the localization rate of Japanese enterprises, the JETRO data (2016) shows that this ratio of Vietnam is very low and much lower than that of other neighboring countries In 2015, the localization rate of Japanese enterprises in Vietnam is only 32.1%, while Malaysia is 36%, Indonesia 40.5%, Thailand 55.5% and China 64.7% 33 2.4.4 FDI contribution to state budget revenue With the development of the quantity and size of FDI enterprises, the contribution of the FDI sector to the state budget has also increased continuously over the years Compared with the year of 2000, budget revenues from the FDI sector in 2015 increased more than 35 times In the six years from 2005 to 2010, budget revenues from the FDI sector reached approximately VND 216.9 billion, which is an increase of nearly four times compared to the previous period (the period from 2006 to 2010 was more than VND 56.1 billion) In the period of 2011 – 2015, budget revenue from this area increased more than times, reaching the total value of approximately VND 579 billion Figure 2.6 State budget revenues from FDI enterprises 140000   120000   100000   80000   60000   40000   20000     2006   2008   2010   2012   2014   State  budget  revenue  from  foreign-­‐owned  capital  enterprises   (Source: General Statistics Office, 2016) However, considering in terms of the share of FDI in total social investment, the contribution of FDI to revenue collection is rather limited and unsuitable This may be explained by the fact that FDI enterprises are receiving incentives from the government through income tax reductions in the first years of operation Many FDI enterprises have not been lucrative or even loss; therefore, tax collection from businesses is still limited In the first phase, when the preferential policies are in place, 34 businesses have to deduct asset depreciation, production has not reached full capacity and profit is still low and enterprises have reasons to explain losses Nevertheless, in recent years, there has been much evidence that FDI enterprises evade taxes through price manipulation tricks to distort their business According to the VCCI (2015), in the recent period fomr 2012 to 2014, the FDI sector has the highest rate of business losses in all types of enterprises, accounting for 48% This contradicts the fact that thses enterprises are tending to expand their scale of production and business According to the VCCI study in 2013, about 65% of enterprises with very high profit margin (over 20%) admit involving in price transfer Similarly, 44% of businesses are highly profitable, 12% of medium-sized firms and 9% of businesses operate optimally but very little interest and still carry a price In addition, according to the survey results, about 30% of enterprses with a small loss (from to 5%) also acknowledge the transfer This illustrates the high probability that the high level of management firms will move to push them down to profitability to avoid corporate income tax Foreign investors also tend to take advantage of incentives from homeowners who not have conditions to enforce their commitments, transfer their incomes and profits out by setting high prices of imported raw materials and machinery From the parent company, while selling the goods produced to the parent company at a very low price, they are always in a loss situation; not only duty free but also get VAT refunded Accoding to the review report of the inspection and examination of the tax branch, 2,077 enterprises showing signs of transfer, collection and fines of nearly VND 5,500 billion has been discover by taxation department In 2015, this figure doubled with 4,751 enterprises showing signs of transfer and fines that were up to VND 10,050 billion 35 CHAPTER THREE: CONCLUSIONS AND RECOMMENDATIONS TO ATTRACT AND ALLOCATE FDI IN VIETNAM 3.1 Conclusion The foreign invested sector is increasingly asserting an important role in the Vietnamese economy FDI is an additional source of capital for economic development, transfer of new technologies, expansion of export markets and economic restructuring By recognizing the importance of FDI capital, Vietnam has been trying to strengthen the legal system in general and the legal system related to FDI in particular to attract investors In fact, Vietnam has attracted a large amount of FDI and has a tendency to increase further In order to contritbute to the improvement of the theoretical basis as well as the assessment of the current status of FDI attraction and usage, the thesis has solved the initial research objectives These include systematization of theoretical foundations of foreign direct investment capital, anaylize the situation of attracting and using FDI, identify current FDI inflows in Vietnam and forecast FDI demand for the period from 2016 to 2020, thereby providing some incentives for efficient FDI attraction and use 3.2 Limitations of the research Although the research was conducted with great effort and dedicated guidance from the instructor; however, the thesis cannot avoid the limitations Initially, the study has difficulties in updating data for 2016 due to some macroeconomic data on growth; labor incomes are not updated with the World Bank or the General Statistics Offices Secondly, as data from Vietnam is officially provided from the General Statistics Office of Vietnam, the study has still found it difficult to control the quality of data Thirdly, within the scope of the thesis, research has not been able to carry out analyses and comparisons by region and locality Finally, suggested solutions are proposed only on the basic of logical and empirical logic of the countries, without any real verification 3.3 Recommendations 3.3.1 Improving policy enforcement At present, Vietnam has a relatively large system of policies, but the effectiveness of the law is very limited According to the World Bank (2013), Vietnam 36 is one of the world’s leading lawmakers, but one of the weakest in the world in law enforcement In fact, this situation is not because the political will of the central government is not strong enough, but it is largely due to unclear guidelines, limieted capacity of local authorities and large group benefits lead to postponement and poor compliance For example, the Investment Law (2004) does not allow ministries, sectors and localities to impose business conditions by way of circulars and administrative decisions after July 1, 2015 but none of the ministries, sectors or localities obeyed and this issue forced the governmental to postpone the deadline until July 1, 2016 Otherwise, in the governmental sense, it is always emphasized that there is the need and importance of having regional connectivity, but actually allocated investment turns the Vietnamese economy into a divided economy of 63 provinces Therefore, in order to improve the effectiveness of law enforcement, some measures should be implemented as follows: First, it is necessary to strengthen the information and communication system in order to provide timely information related to policy adjustment and new regulations to relevant units and agencies for the units to know and timely deployment Second, documents and regulations should be suitable with objects and scope of regulation, not general provisions In some cases, in practice, legal documents not correct the object causing the object the lack of reality that should be adjusted noncompliance Third, it is necessary to step up the inspection and supervision of activies of FDI enterprises in order to prompty detect and handle violations It is also necessary to inspect and supervise the performance of the stated objectives that the investors has committed under the investment certificate or business registration certificate; financial obligations to the state, regulations related to workers, environmental protection, technology transfer, etc Until now, incentives for FDi enterprises are often not accompanied by the lawsuit are enforced when committed; leading to the fact that FDI enterprises are not responsible to the host country Therefore, the preferential policies should be amended and implemented on a conditional basis and for a specific period of time Investors who perform well the expected objectives can be extended or added incentives In reverse, investors who not fully execute their pledges of 37 preferential treatment will not be subject to incentives and must compensate for the incentives they have received Finally, the government should focus on the penalties, especially penalties for transfer pricing, environmental pollution and labor disputes should also be made clearer, stricter and more stringent to deter deterioration Furthermore, the monitoring of the implementation of sanctioning decisions should be more rigorous, avoiding the failure to so or to perform half For example, paying a fine without corrective actions 3.3.2 Enhancing transparency and fighting against corruption One of the key factors for promoting the attraction and utilization of FDI effectively is the attractiveness of the investment environment More specifically, to increase the attractiveness of the investment environment, the issue of transparency in state management is one of the most important issues This is reflected in the variation in the level of transparency and the level of corruption that occurs in most indicators of the investment climate of the economy For example, the Regulatory Quality and Rule of Law categories are used in the Global Opportunities Index; the control of corruption, the effectiveness of government administration is used in the governance index Therefore, in order to improve the transparency of the investment environment, a number of specific measures that need to be taken include: Firstly, it is necessary to supplement and refine the implementing guidelines to help those responsible for implementing them properly and correctly Implementing guidelines need to be specific and focus on the issue not to rule in general to avoid unclear regulatory content, resulting in different interpretations and difficulties in implementation In addition, guiding documents need to be consistent from the central to local according to the law Secondly, the state apparatus should be streamlined This will help the state apparatus be more compact and at the same time offer the opportunity to pool resources into other areas Streamlining the state apparatus also contributes to solving the burden of wages in the state sector In order to this, public statistics on the number of people working in the management apparatus at all levels are needed The 38 streamlining of the apparatus should be planned to ensure the interests of the workers and the stability of state management Thirdly, it is necessary to specify and clearly define the responsibilities, powers, regulations on promotion and dismissal of leaders and officials The current promotion in Vietnam does not have clear and public regulations on holding time or promotion conditions On the one hand, this will reduce the motivation of the leader; on the other hand, the promotion opportunity of the promoted people would be diminished In other cases, the source staff is rotated to the field for fieldwork and then called to the central office holding the positions of the head of the ministry without having regard to the achievement they have achieved in the field 3.3.3 Developing domestic financial market and efficiently exploiting domestic capital In order to facilitate investment activities in general and FDI in particular, the development of financial markets is important and necessary At present, Vietnam’s economic growth is mainly based on foreign capital Although it is explained by the fact that domestic capital accumulation is still limited, in reality, it can be seen that Vietnam has not effectively exploited domestic capital due to the weakness of the financial market After 30 years of renovation, Vietnam has basically formed parts of the financial market The financial institution system has developed in both quantity and quality The legal framework for the development of the financial market in auditing and accounting is adequately and uninformly promulgated The system of accounting and auditing standards is issued in a timely manner and is increasingly finalized on the basis of close the access to internaltional practices State management of the financial market is institutionalized step by step State management agencies for the operation of the financial market have coordination in controlling and supervising However, the current financial market in Vietnam also implies many risks that can lead to market instability and the economy as the financial health of financial institutions, low liquidity of money market and capital market; transaction behavior in the capital market of stakeholders involved, cross-sectional between regions, parts of the financial 39 market and financial corporations themselves In addition, monitoring national financial market, supervising and inspecting financial market is still limited Therefore, in order to effectively exploit more domestic capital, Vietnam needs to overcome the above issues in order to develop the financial market Specific measures should be implemented as follows: First, it is necessary to focus on restructuring the financial market Specifically, the financial market needs to be restructured towards a healthy and stable macroeconomic stability, aiming to eliminate the risk of system unsafety Second, it is necessary to improve the efficiency and competitiveness of commercial banks In order to this, commercial banks need to be restructured and bad debt repaid, and even bankruptcy of insolvent banks may be effective Third, it is necessary to establish and develop the structure of the capital market, especially focusing on developing the stock market Finanlly, It is imperative to consolidate and develop a comprehensive financial supervisory system, which is capable of analyzing, evaluating and warding the level of risk of the entire financial system as well as each segment of the market 3.3.4 Adjusting development perspectives Vietnam’s growth model is based on capital inflows In order to attract foreign capital, Vietnam relies heavily on competitive advantage of available resources and cheap labor Hoever, in the new conditions when global economic integration and technology are increasingly developed, the above competitive advantages of Vietnam gradually lose value Accordingly, the use of raw capital and exploitation of these available factors for economic growth is no longer appropriate Although from the 2000s, party congress documents stressed the importance of upgrading FDI to make fundamental changes in FDI, towards sustainable development, but in the process of attracting FDI, using FDI and the quality of FDI has not really been paid attention For many years, Vietnam has been working hard to attract FDI Therefore, adjusting development perspectives is necessary First, Vietnam needs to radically change its performance thinking and following GDP growth In fact, FDI has both positive and negative effects on the economy Thus, the final effect of FDI is not only measured by economic efficiency but it is the 40 net effect after deducting the costs and losses that FDI inflicts on the economy Therefore, Vietnam needs to radically change its performance and run on GDP growth Instead, Vietnam should pay more attention to the Gross National Indext (GNI) because the GDP growth indicator only represents the gross dometic products of an economy In other words, it is purely economic At the same time, the national GDP estimates allow social end environmental factors to be taken into account Secondly, there is a need for a clearer development perspective to orient FDI attraction Learning from China and Malaysia, those countries have all been successful in attracting FDI and using it effectively because of their clear developmental point of view from the very beginning of the call for capital China has taken a cautious perspective on FDI development in each period China does not attract massive capital out of control, which was first piloted in a number of cities and regions Then take advantage of the spillover effects of FDI to develop the neighborhood Meanwhile, Malaysia set a very clear goal from the beginning is to strive to become a modern industrial country Accordingly, this country has carefully classified and selected FDI projects right from the beginning, concentrated on attracting FDI prijects with high technological content and gray matter For Vietnam, the sense of attracting and using FDI needs to be adjusted in line with the selection and improvement of FDI quality, favoring clean and high-value FDI projects, generating high added value and aiming to export boosting 41 LIST OF REFERENCES Asiedu, E., (2002) “On the determinant of foreign direct investment to developing countries: Is Africa different?” World Development 30 (1), pp 107-119 January Calcagnini, G & Saltari (2000) “Real and Financial Uncertainty and Investment Decisions”, Journal of Macroeconomics, Elsevier, 22(3), pp 491-514, July General Statistics Office of Vietnam (2015), Statistical Yearbook of Vietnam 2015 Nuyen Mai (2011), “Dau tu truc tiep nuoc ngoai voi phat trien ben vung o Viet Nam” Nguyen Mai (2012), “Thong nhat nhan thuc de hanh dong”, Ministry of Planning and Investment Nguyen Mai (2015), “Cu huych nang cao chat luong nguon von FDI” Nguyen Mai (2016), “Khoi dau lan song FDI thu ba” Nguyen, N.A; Nguyen T (2007) Foreign Direct Investment in Vietnam: An overview and analysis the determinants of spatial distribution across provinces Development and Policies Research Center Nguyen, T.A; Vu, N.H; Tran, T.T; Nguyen, M.H (2006) The impacts of Foreign Direct Investment on the Economic Growth in Vietnam Research Report 10 Some statistics are collected from: − General Statistics Office (Vietnam): www.gso.gov.vn/ − Vietnam Report (Vietnam): www.vietnamreport.net/ − Vietnam News (Vietnam): www.vietnamnews.net/ − Ministry of Planning and Investment (Vietnam): www.mpi.gov.vn/ − World Bank Open Data: www.data.worldbank.org − Vietnam Law and Legal Forum: www.vietnamlawmagazine.vn/ − Google Search Engine: www.google.com/