In the high-stakes arena of global supply chains, Vietnam is the name on everyone’s lips. As multinational firms seek to de-risk from China, Vietnam has emerged as a prime beneficiary, with exports to the U.S. soaring and FDI pouring in. This has fueled narratives of a new tiger economy on the rise. Yet, beneath the surface of this success lies a model that, until recently, has been more extractive than developmental.
Since the Doi Moi reforms of 1986, Vietnam’s growth has often resembled what international observers call Extractive Developmental State. Its economic engine was fueled by exporting raw commodities like crude oil, coffee, and seafood, alongside low-end manufacturing that added minimal value. While this approach has lifted millions from poverty, it created a structure of dependency. The state welcomed foreign investments whom primarily seeked to exploit cheap domestic labor and resources, framing its institutions around “ease of doing business” rather than strategic industrial upgrading.
This model did created growth, but not deep capability. As scholars have noted, it often relied on state-capital alliances based on patronage and rent-sharing, where elites benefited from the extraction of natural and land resources. The industrial linkages remained weak, and the domestic private sector struggled to move beyond simple tasks. While an industrial developmental state steadily builds up national capacity, Vietnam’s extractive version risked sustaining dependency and inequality.
A World Remade: The Return of Industrial Policy
That old model is witnessing an opportunity for self-transformation under a new global landscape. The era of neoliberal globalization, where depoliticized markets reigned supreme, is over. Industrial policy, once considered taboo, is back with a vengeance, driven by a series of global shocks.
First, the supply chain disruptions from the COVID-19 pandemic and the war in Ukraine exposed the fragility of hyper-efficient, geographically concentrated production. From the perspective of policymakers, economic resilience now often reign supreme over efficiency.
Second, the escalating US-China tech rivalry has turned semiconductors, AI, and green technologies into arenas of fierce geo-economic competition. Interdependence is increasingly being weaponized, forcing states to decoupling, secure critical technologies and production capabilities.
Finally, this has led to what analysts call as geo-economic fragmentation. The world is reorganizing into politically aligned economic blocs, driven by strategies like friend-shoring. For a country like Vietnam, positioned at the heart of Southeast Asia and bordering China, simply being an open platform for low-cost assembly is no longer a viable long-term strategy. It must build its own industrial muscle as the only viable pathway.
Forging a True Industrial Developmental State
These global pressures are creating powerful incentives for Vietnam to transition toward a genuine Industrial Developmental State. This model reminiscent of the East Asian tigers that preceded it. The features of this emerging strategy are becoming increasingly clear.
Hanoi’s recent policies reveal a clear ambition for industrial upgrading, aiming to move from low-value textiles to higher-value electronics, machinery, and green technology. The focus remains squarely on producing globally competitive goods for export, the backbone of its economy.
Crucially, the state is taking a more directive role. Through targeted credit, strategic subsidies, and national master plans, it is attempting to steer investment toward key sectors. This is most visible in the effort to cultivate new national champions. The rise of companies like Vingroup, with its ambitious electric vehicle venture VinFast, and the military-run tech giant Viettel – all reflects a conscious strategy to build domestic firms with global reach.
This can be said to mirror the classic developmental state playbook, where the goal is structural transformation leading to higher productivity and a diversified economy. Yet, formulating the strategy is an easy task, but the real challenge is can Hanoi actually build-up the unique state capacity to deliver it? The key ingredient for a successful developmental state as suggested by Peter Evan: embedded autonomy – a state apparatus that is deeply connected to the business community to facilitate coordination, yet sufficiently insulated from vested interests to prevent capture and corruption – has little evidence in the case of Vietnam.
The Unfinished Reform: Building Development-Fostering Institutions
This is where Vietnam’s historic challenge lies. Its past as a rent-seeking state has left a legacy of institutions designed for extraction, not strategic development. Reforming this apparatus is the central task for the country’s current leaders. The ongoing, intensified anti-corruption campaign and institutional reform is therefore should be seen as the precondition for building a capable, autonomous Vietnamese state.
By dismantling entrenched networks, the government is attempting to create the political space needed to make decisions based on long-term national interest rather than short-term rent-seeking. This is a battle to establish the very embedded autonomy required to effectively guide an industrial strategy.
However, the road ahead is still unclear. The shift from an extractive to a developmental logic requires a fundamental change in the state’s relationship with the economy. It demands a professional, technocratic bureaucracy capable of making complex industrial bets, a challenge for any country. Moreover, it requires a delicate balancing act: intervening to guide the market without restraining it.
As Vietnam continues its rapid integration into the global economy, the pressures will only intensify. The US-China rivalry provides a powerful tailwind, but it also carries the risk of forcing choices that could compromise Vietnam’s strategic autonomy. Forging a path between these giants while simultaneously re-engineering its domestic political economy is perhaps the most difficult task for any modern statecrafts.
Can Vietnam complete its transformation?
The ambition is clear, and the external incentives have never been stronger. But building a true developmental state is ultimately an institutional project. Vietnam has shown it can grow fast; the next, harder test is whether it can build state institutions capable of leading it to high-income status by 2045 as officially set out by the Vietnamese leaders. To further assess Vietnam’s level of determination and future trajectory, we will have to wait until the 14th National Congress of the Communist Party of Vietnam, to be held in January 2026. This might determine if a new red tiger is going to truly emerges in Asia.
