Lessons from Japan, Korea and Singapore: How can Vietnam escape the middle-income trap?

To overcome the middle-income trap, Vietnamese economist Prof. Dr. Tran Dinh Thien says Vietnam should learn from good-practice models such as Japan, Korea, Singapore, and Taiwan (China). In particular, he points to how private corporations are developed and how the private sector is structured in Japan and China.

Lessons from Japan, Korea, and Taiwan

Prof. Dr. Tran Dinh Thien says Japan and Korea built a multi-tiered industrial base that links large conglomerates with small and medium-sized enterprises. This structure, he notes, fosters competition while maintaining cohesion—an approach Vietnam should study.

He also highlights Taiwan’s economic structure as a model for sustainability. According to him, Taiwan has accepted a high-interest-rate approach for decades, where high rates push investment activity to use capital more efficiently. At the same time, the benefits from high interest rates accrue to savers—the people—supporting income distribution.

In addition, he argues that Taiwan’s model encourages prudent and effective use of borrowed funds by large investors. In his view, high interest rates encourage saving, while investment is tightly controlled, helping restrain inflation. He describes this as a form of governance.

Vietnam’s interest-rate challenge and capital allocation

Prof. Dr. Tran Dinh Thien says Vietnam’s high interest rates are “stuck” because the policy for holding rates is not tied to demand for efficient capital use, leading to waste. He argues that the state sector is pumping money too much, while many firms use large amounts of capital that are not truly efficient.

He adds that this waste creates inflation risks; if inflation does not occur, money may still fail to flow into the private sector. “Therefore, we need to learn truly effective experiences,” he says.

Human resources and automation

He also says Vietnam needs to change its approach to human resource development. He cites Korea and Japan as examples that built high-quality workforces, but notes that their labor approach must be adjusted in the context of AI, smart robots, and AI-based automation.

Priority tasks for Vietnam this year

To achieve these goals this year, Prof. Dr. Tran Dinh Thien says Vietnam needs to address several issues.

1) Remove “stuck” projects

He calls for removing projects that are “stuck.” Once bottlenecks are cleared, he says new capital can flow, jobs can be created, and the private sector can recover. He warns that the number of stuck projects is currently too large, and if this cannot be resolved, the economy will struggle to break out.

2) Amend the Land Law

He recommends amending the Land Law to clarify property rights and the mechanism for land pricing. He says property rights must be transparent, and land prices should operate under market principles based on supply and demand and healthy competition. He argues that Vietnam is still muddled—confusing speculative land prices with market prices—leading to inefficient allocation of land resources.

3) Improve capital and credit markets

He says Vietnam should improve the capital market and the credit market. He describes the capital market as weak, with high risk, while enterprises struggle to access long-term resources. He notes that policies to develop trading venues and upgrade financial infrastructure are the right direction, but must be implemented quickly to help the private sector use capital more efficiently.

4) Strengthen market management linked to e-commerce

He highlights market management tied to e-commerce as a non-negligible issue. He says cheap goods from China are flooding in, creating pressure on domestic production and risking that domestic producers could be knocked out if not handled properly. He describes this as directly impacting the vitality of Vietnamese enterprises.

Trade context and “breakthrough coordinates”

Finally, Prof. Dr. Tran Dinh Thien says that while Vietnam is forming “breakthrough coordinates” such as free-trade zones and a financial center, it must consider the global trade context. He points to a divide between protectionist tendencies and liberalization, noting that the US leans toward protectionism while China leans toward openness. He argues that, if managed correctly, Vietnam could unlock many opportunities from this environment.