Can Vietnam’s ‘era of rising’ break the middle-income trap?

Can Vietnam’s ‘era of rising’ break the middle-income trap?

Vietnam has announced its ambition to become a high-income country by 2045 by focusing on technology-driven growth and industrial modernisation, but there are several challenges that must be addressed. In order to successfully transition and break free of the middle-income trap, Vietnam must enact institutional reforms, develop an effective strategy to navigate international trade dynamics, make dynamic investment decisions, enforce political accountability and increase spending on research, development and education.

Vietnam has set its sights on becoming a high-income country by 2045, a bold ambition that marks a critical turning point in its economic trajectory. General Secretary To Lam’s vision for an ‘era of rising’ focuses on technology-driven growth and industrial modernisation. But turning this vision into reality demands more than just rhetoric, with the country facing major structural hurdles from institutional bottlenecks to global economic headwinds.

The ruling Communist Party of Vietnam (CPV) is expected to officially endorse the ‘era of rising’ at its 14th National Congress in January 2026. To Lam and Prime Minister Pham Minh Chinh are pushing for economic modernisation, digital transformation and industrial upgrading. But so far the execution has been uneven. Vietnam remains heavily reliant on low-cost manufacturing and foreign direct investment (FDI), raising concerns about its long-term economic resilience.

Despite government incentives for high-tech industries and digital infrastructure, bureaucratic inefficiencies and regulatory inconsistencies continue to stifle private sector growth. Without institutional reforms that enhance transparency and streamline decision-making, Vietnam risks stagnation rather than an economic take-off.

Vietnam’s current economic strategy lacks a vision for how to respond to rising US trade protectionism. Washington’s push for reshoring production and imposing higher tariffs could disrupt Vietnam’s export-driven model. While Vietnam is part of major trade agreements like the CPTPP and RCEP, structural limitations prevent it from fully capitalising on these deals.

Deepening economic ties with the US, especially in high-value sectors such as semiconductor manufacturing and digital services, will position Vietnam favourably. Vietnam must also adopt a more proactive trade diplomacy strategy to navigate shifting global supply chains and maintain its competitive edge.

Vietnam targets annual GDP growth of 6–7 per cent, but inefficient resource allocation threatens this goal. While the Red River Delta and Southeast regions receive the highest public investment, some high-growth regions remain underfunded, leading to infrastructure and service bottlenecks.

Urbanisation is accelerating, with Vietnam’s urban population rising from 30.5 per cent in 2010 to 41.5 per cent in 2022. Larger population centres such as Ho Chi Minh City face mounting infrastructure pressures, while rural provinces such as Thanh Hoa struggle with depopulation. A longer-term and more dynamic investment strategy is needed to ensure sustainable and inclusive growth across the country.

On the political front, the CPV’s anti-corruption campaign — dubbed the ‘burning furnace’ — has bolstered public trust in governance but has also created unintended consequences. Fear of scrutiny has led to bureaucratic paralysis, with officials hesitant to approve major economic and infrastructure projects.

A more balanced approach is necessary — one that enforces accountability without stifling decision-making. Transparent regulatory mechanisms can provide much-needed clarity for both domestic and foreign investors.

The World Bank defines high-income economies as those with a GNI per capita above US$13,205 (the 2023 threshold). Vietnam’s current GNI per capita stands at around US$4,110 — a significant gap that will require major economic transformation to overcome.

The experiences of South Korea and Singapore offer valuable lessons. Both nations successfully transitioned to high-income status through targeted reforms, human capital development and investment in innovation. On the other hand, other Southeast Asian nations have been left behind due to persistent structural constraints.

Vietnam’s next steps should be to prioritise education reform, research and development and the integration of domestic firms into global supply chains. Decree No. 111/2015/ND-CP aims to boost Vietnam’s supporting industries, but progress has been slow.

But escaping the middle-income trap is not just about hitting an income threshold. Long-term success depends on institutional quality, economic complexity and a strong innovation ecosystem. At the National Conference on Breakthroughs in Science, Technology, Innovation and National Digital Transformation in January 2025, To Lam underscored the need for investment in science and technology. While the government has allocated 3 per cent of its annual budget to research and development, actual implementation remains weak. To address this, Vietnam plans to increase funding to 2 per cent of GDP by 2030, aligning with the Politburo’s Resolution No. 57 (December 2024).

The ‘era of rising’ is more than a slogan — it is a test of Vietnam’s ability to break free from structural limitations and emerge as a high-income economy. The next two decades will determine whether the country achieves this goal or remains stuck in economic stagnation.

The path forward requires decisive action: institutional reforms to enhance governance, policies that attract high-value investment and a strategic shift towards innovation-driven growth. With the right balance of state-led direction and market-driven dynamism, Vietnam has the potential to rise to new heights in the global economy.

Do Khuong Manh Linh is a fellow in political science and international relations at the Institute of Politics and International Relations, Ho Chi Minh National Academy of Politics, Vietnam.

Source: EastAsiaForum