Domestic businesses in danger of being swallowed up by foreign funds

While newly registered businesses are getting smaller in scale, foreign companies and funds are growing in investment capital.

In 2020, the average registered capital was VND28 billion per business. The figures were VND 17 billion in 2021 and VND10.6 billion in 2022. Meanwhile, in the first two months of 2023, it was just VND7.4 billion, according to Nguyen Khac Hoang, head of the HCM City Statistics Office.

Hoang noted that while the registered capital of businesses throughout the country is on the decrease, the number of foreign invested enterprises is on the rise.

As many as 103 foreign invested projects were granted investment registration certificates in the last two months with a total registered capital of $99 million, which represented 47 percent of the number of new projects and 24 percent of investment capital in comparison with the same period last year.

At the same time, HCM City allowed 305 foreign investors to make capital contributions and buy into Vietnamese enterprises with total capital of $199.7 million, up by 13.4 percent in the number of projects and 23.8 percent in capital.

Major General Le Hong Nam, director of HCM City Police, said many enterprises in HCM City are facing financial difficulties because of input material price increases and high bank loan interest rates, leaving them vulnerable to takeovers by foreign companies and investment funds.

A report on HCM City socio-economic development in February showed that 11,877 enterprises have completed procedures to be dissolved or suspended operation, while 3,741 enterprises have resumed operation. 

As such, the number of enterprises suspending operation is triple the number coming back to the market.

A survey by HCM City Business Association with 100 enterprises found that 83 percent faced difficulties, including market narrowing (41.2 percent), high inventories (30.1 percent), input material price increase (17.6 percent), bank loan inaccessibility (40 percent), high interest rates (43 percent), complicated procedures for loan access (38.2 percent).

Expert Tran Du Lich noted that when inflation rate is below 4 percent, lending interest rates of 9-10 percent per annum are unbearable. The current policy on maintaining real positive interest rates will stifle all the efforts in investment and economic development.

According to Truong Minh Huy Vu, deputy head of the HCM City Institute of Development Studies (HIDS), the situation in Q1 and 2 2023 is the continuation of the downward trend beginning in late 2022. The workforce downsizing may continue because of the fear for the bad economic performance in the world.