Economic groups – giants with weak feet

16:47' 06/05/2008 (GMT+7)
Forming economic groups from general corporations seems to be in fashion in Vietnam. However, experts have pointed out that this is not a good thing in all cases.
The director of a Japanese investment fund said that he cannot understand why Vietnamese enterprises like the word ‘economic groups’. The reports of equitised corporations and private companies all say that the corporations aim to form strong economic groups sooner or later.
Meanwhile, the director said that he thinks the most suitable model for Vietnam in particular and Asia in general is the existence of small- and medium-sized enterprises, which can easily adapt to new circumstances and be competitive.
In fact, the model of chaebol (big conglomerates formed and managed by big families, which control main business fields of the national economy) is shaky. Last year, the Hyundai Group chairman was convicted of embezzling public money. This year, the chairman of Samsung Group announced his resignation following his indictment on tax evasion charges.
In South Korea, the 30 biggest chaebols control 40% of the national economy. Meanwhile, in Vietnam, according to the Ministry of Finance, there are 70 economic groups and general corporations. The giant groups and corporations just make up 40% of GDP, but use 60-70% of bank loans and the same proportion of foreign loans.
Most of the said groups and corporations are operating in the most profitable business fields, where they enjoy a monopoly, including petroleum, electricity, coal, and aviation. Though being the sole players on the pitch, the economic groups and corporations often complain that they incur heavy losses and threaten to raise the sale prices of commodities.
These groups and general corporations especially like setting up subsidiaries, which are the playing fields where they can exploit most of the preferences from the monopoly. Many of them have jumped into other business fields, which has raised concerns about their capacities in business management. Audited financial reports by the groups show that many of them have not been making profit, or even causing the state to suffer losses.
Of course, the bad performance of the groups and the risks they meet lead to risks for the national economy.
Dr Le Dang Doanh, a senior economist, said that Vietnamese economic groups and corporations are now like giants with weak feet. They have large bodies but cannot stand firmly on their feet. They always need the support of the state to survive.
However, analysts have warned that monopolies will be removed under the pressure of global economic integration.
It is necessary now to put economic groups under the strict control of the law, and to tidy up the business environment, expert say.