Workers of the state-run mining giant Vinacomin, which has been put in the list for privatization within 2019. Photo by the Vietnam News Agency

The privatization process was behind schedule "though the government has ordered SOEs to speed up the process and threatened them with penalties," said Dang Quyet Tien, head of the Finance Ministry’s corporate finance department.

He blamed the extremely sluggish pace on the tortuous process of determining the extent of lands owned by state firms to make their valuation.

"However, many companies have already undergone several transitions in the past, followed by changes in papers, seals, and asset certificates, and sorting through them is a complicated task."

In December 2016 the government had set a target of reducing the number of state-owned enterprises (SOEs) from 583 to 103 by 2020.

By the end of last year there were still more than 500 after only 11 were privatized against the target of 64 for 2018, according to the Ministry of Finance.

With the number of state firms remaining high, Vietnam could have a hard time fulfilling its obligations under the Comprehensive and Progressive Trans Pacific Partnership (CPTPP), a free trade agreement it signed in March last year with 10 other nations, including Canada and Japan.

The CPTPP requires member countries to disclose certain information about their SOEs to other members to encourage transparency and good corporate governance.

The deal seeks to promote a level playing field for SOEs and their private competitors so that businesses operating in or seeking to expand into CPTPP markets are able to compete fairly with state companies.

It also prevents a member from causing adverse effects or injury to the interests of another member through non-commercial assistance to an SOE.

Six of the signatories acceded to the deal on December 30 last year while Vietnam formally enters it on January 14 this year.

Vietnam is required to improve its business environment and create greater competition than required under the World Trade Organization that it joined in 2007.

It will gradually bring all import tariffs for goods from other members to zero, hold public auctions for government procurement and treat private and state firms equally.

The pact means Vietnam’s state firms will soon be subject to a new set of international rules as well as increased competition from abroad as tariffs are reduced.

Vietnam’s ratification of the CPTPP obligates the country to liberalize the state sector, and a trade deal expected soon with the European Union could bring more pressure to achieve these reforms, Forbes quoted Rajiv Biswas, Asia Pacific chief economist at IHS Markit in Singapore, as saying.

"Over the next decade I would expect to see a gradual transformation, more competition in the state sector, because they have to under the terms of the trade agreement," said Rajiv Biswas.

Fear of further delay

On January 5 this year Prime Minister Nguyen Xuan Phuc said the country has to speed up the privatization process this year so that it can achieve the target set for 2020.

He was referring to a dramatically slashed target. In July 2017 the government had said 44 SOEs would be privatized that year, 64 last year, 18 this year, and one next year, or a total of just 123.

In a recent public greeting for the New Year, the PM said in 2019 it is necessary for Vietnam to focus on restructuring and privatizing SOEs.

Phuc also instructed related ministries and departments to closely monitor state companies to prevent delays in privatization and divestment and related violations.

Josephine Yei Pheck Joo, CEO of SaigonBank Berjaya Securities, feared the U.S.-China trade war would harm global markets.

Vietnam, a major exporter to the U.S., Europe and China, would particularly suffer, with the divestment of shares in state-owned enterprises further delayed due to reduced investor demand and lower prices, she told Nikkei Asian Review.

According to data compiled by Bloomberg late last year, 17 auctions to sell shares of SOEs were canceled in 2018, with their total value being a decade-high $401 million.

But as Bloomberg pointed out, it is not a case of investors no longer being interested in Vietnam: it is just that they find private firms much more attractive.

"Private company IPOs in Vietnam did well because there was more transparency in the process, management meetings, prospectus, book-building process," Ruchir Desai, a senior investment analyst at Asia Frontier Capital Ltd. in Hong Kong, told Bloomberg.

"Some of the SOEs were loss making or had high debt levels, and they are also probably in sectors where there is not much interest."