Businesses in Vietnam close down at increasing rate

By Phuong Dong   November 11, 2018 | 07:41 pm GMT-8
Businesses in Vietnam close down at increasing rate
Labourers arrange steel structures at a construction site of an office building in Hanoi. Photo by Reuters/Kham
The number of enterprises closing down in the year to date hit 67,000, double the number in the same period last year.

Chu Tien Dung, chairman of the HCM City Business Association, told VnExpress that this number is unusually high but can be explained by problems that have existed for years. 

The government’s target of having 1 million enterprises by 2020 is to blame in no small measure since it has led to policies that encourage quantity rather than quality, he said. 

Typically, this has seen sole traders registered as one-man limited companies and a big start-up movement in major cities such as HCM City and Hanoi.

"The procedures for setting up a limited company have been greatly simplified so that anyone can become a boss. If within a few years or even months the owner finds the business line to be unsuitable or does not like the company name, it is not difficult to dissolve and establish a new business."

Statistics from the Department of Business Registration show that of the enterprises closing down each month the rate of those with charter capital of below VND10 billion ($426,350) is overwhelming.  

The reason lies primarily in the fact that small and medium- sized enterprises (SMEs) lack resources and also have difficulty accessing credit. 

The liberalization of the law on investment is being used by some to profit illegally, he said. Many enterprises have announced insolvency due to heavy losses.

According to the World Bank, starting up in Vietnam now involves only eight steps which can be completed in 17 days while it takes 26 days on average in East Asia and the Pacific to complete formalities and enter the market. 

Tran Thi Hong Minh, director of the Department of Business Registration, said: "Dissolution and bankruptcy is the natural, objective law of the economy. The market will eliminate and purge weak businesses to replace them with those of better quality.

"Vietnam is considered a dynamic economy with rapidly developing science and technology and so the pressure on businesses is of an equivalent magnitude."

Pham Chi Lan, former chairwoman of the Vietnam Chamber of Commerce and Industry (VCCI), said business owners had expressed concern the business climate had not improved much. 

Even in the case of single-door administrative procedures, where all documents are meant to be submitted and received at one office, an applicant has to go through many other doors, she said. 

"While we are talking about creating new tools and policies, old, defunct procedures are still not scrapped. As such, Vietnamese businesses are very worried about their future."

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