Current Status of State Ownership Model in State-Owned Enterprises in Vietnam in the Period 1995-2020

and continue to increase in the coming time to move towards applying Base II standards according to Circular 41/2016/TT-NHNN on meeting the standards of international credit rating organizations to maintain the current credit rating of state-owned commercial banks.

Regarding asset quality: the period of 2016-2020 is the period of restructuring credit institutions, reducing bad debt, by the end of 2019, outstanding debt of group 2 was 66,520 billion VND, accounting for 1.7% of total outstanding debt, an increase of 1,002 billion VND (1.5%) compared to the end of 2018. Total bad debt (debt of groups 3,4,5) was 53,654 billion VND, a decrease of 1,163 billion VND (-2.1%) compared to 2018. The ratio of bad debt/total outstanding loans was at 1.37%. The total bad debt of State-owned commercial banks handled in 2019 (through the following forms: customers repaying debts, selling assets; setting aside provisions) reached VND 62,862 billion, down VND 28,368 billion (31.09%) compared to the end of 2018. Of which, the use of risk prevention in 2019 was VND 44,996 billion, down VND 14,061 billion (-23.8%) compared to the end of 2018. Provisions were VND 56,670 billion, exceeding the plan assigned by the State Bank to banks in 2019 [63].

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Financial situation and performance of the State Capital Management Committee in 2020 and the period 2016-2020, box 6:

Box 6. Performance of State-owned enterprises under the State Capital Management Committee at enterprises in 2016 - 2020

As of December 31, 2020, the State Capital Management Committee at Enterprises manages and represents the State ownership of 19 State-owned corporations and groups, including 13 corporations and groups in which the State holds 100% of the charter capital, 6 corporations and groups with controlling shares and capital contributions, with a charter capital of 685 trillion VND.

Production and business results according to the consolidated report in 2020, the total revenue of 19 enterprises is estimated at 1,223,323 billion VND, in 2019 it was

1,466,104 billion VND (accounting for about 82% of the revenue of SOEs); pre-tax profit of 14/19 corporations and general companies (05 corporations and general companies made losses) reached 54,600 billion VND, down 50.39% compared to 2019 (in 2019 it reached 110,068 billion VND); total budget payment of 19 corporations and general companies reached 190,112 billion VND, down 12.69% compared to 2019 (in 2019 it reached 217,749 billion VND - accounting for 55% of the total state budget payment of SOEs).

In the period 2016-2020 according to the consolidated report: Total revenue of the group and corporation reached 6,280,882 billion VND (average 1,256,176 billion VND/year). Total profit before tax reached 442,619 billion VND (average 88,523 billion VND/year), tax paid to the state budget reached 978,251 billion VND (average 195,650 billion VND) [64].

Regarding the limitations and weaknesses of state-owned enterprises: Recently, many large domestic and foreign investment projects and works have been losing money; Only 12 large investment projects of the Industry and Trade sector at present (Dinh Vu Fiber, Quang Ngai Ethanol, Binh Phuoc Ethanol, Lao Cai Iron and Steel, Ninh Binh Nitrogen, Ha Bac Nitrogen, Hai Phong DAP1 Fertilizer, Lao Cai DAP2 Fertilizer, Dung Quat Shipbuilding, Phu Tho Ethanol, Thai Nguyen Iron and Steel, Phuong Nam Pulp) are currently halting construction, ceasing operations or making losses with accumulated losses up to December 31, 2016 of about 14.5 trillion VND, ineffective, negative equity; ceasing operations or operating at a low capacity, below design capacity; many investment projects are unfinished, behind schedule, prolonged (even for more than 10 years), capital increase requires adjustment of total investment leading to increased production costs, products with low competitiveness; contract disputes arise, investment capital has not been settled; many projects also face difficulties in product consumption markets [25]. The debt situation and payment capacity of some SOEs are very worrying, many enterprises have a debt to equity ratio of more than 3 times. The financial situation of many

State-owned enterprises are unhealthy and very complicated; some economic groups and state-owned corporations use short-term capital for long-term investment, which is potentially risky. Many state-owned enterprises, especially some economic groups and state-owned corporations, invest widely, do business in many fields, invest outside their main business areas, especially in risky fields (real estate, securities, insurance, banking, etc.) with low efficiency. Meanwhile, the divestment of non-core investments by state-owned enterprises is slow, has not been implemented drastically and has achieved low results. Many state-owned enterprises are backward in technology and techniques, so they have been and are creating low-quality products, limiting their competitiveness. Many state-owned enterprises, state-owned enterprises and investment projects are ineffective, in debt, incurring losses, and cannot recover. State-owned enterprises have not yet fulfilled their role as the core force of the state economy; have not yet fulfilled the task of leading and creating development momentum for the economy. In general, the business efficiency and contribution of most state-owned enterprises are still low, not commensurate with the resources invested by the State.

3.2 CURRENT STATE OF STATE OWNERSHIP MODEL IN STATE-OWNED ENTERPRISES IN VIETNAM IN THE PERIOD 1995-2020

3.2.1. The current state ownership model in state-owned enterprises in Vietnam is organized according to a decentralized model.

3.2.1.1. Period before 1995

State ownership model: Before the 1995 Law on State-owned Enterprises , State-owned enterprises operated under Decision No. 332-HDBT dated October 23, 1991 of the Council of Ministers (now the Government) on preserving and developing business capital for State-owned enterprises. During this time, the function of State ownership was not specifically and clearly defined. The governing Ministries exercised the rights of State ownership from the establishment, management, decision on objectives and assignment of plans, decision on personnel issues and directly allocated capital, invested capital, supplemented capital, approved financial reports... and handled issues beyond the authority of State-owned enterprises.

Operation Model: The governing Ministry (Specialized Management Ministry)/Local People's Committees exercise the rights of state ownership over SOEs in coordination with other Ministries according to the decentralization and delegation of authority of the Council of Ministers (now the Government).

Implementation apparatus: Officials of the ministries managing the sector and localities are monitored and advised by the leaders to exercise the rights of the state owner in state-owned enterprises such as: deciding on production and business plans, approving financial statements, deciding on appointments, rewarding and disciplining state-owned enterprise leaders.

3.2.1.2. Period from 2012 to September 2018

After the collapse of Vinashin, Vinalines and other loss-making, inefficient projects, the model of state ownership in enterprises shifted to a "decentralized" model, essentially handing over management to ministries, branches and localities instead of the "centralized" model of corporations and general companies directly under the Government.

State ownership model in SOEs: During this period, Vietnam applied a "decentralized model" in which the representative of state ownership in SOEs was assigned to the governing ministry and the People's Committees of provinces and cities (according to Decree 99/2012/ND-CP).

Model of state ownership representative in state-owned enterprises (according to Decree 99/2012/ND-CP):

Figure 3.2: State ownership model of state management agencies

STATE OWNER

Supervision of the implementation of rights and obligations of state-owned enterprises

Directly perform some rights/obligations of the owner

GOVERNMENT, PRIME MINISTER

GOVERNMENT GENERAL

Assignment, authorization

Perform some rights/obligations of the Owner as assigned and authorized

MINISTRY, PROVINCIAL PEOPLE'S COMMITTEE

STATE ECONOMIC GROUP/STATE CORPORATION OF EXTREME IMPORTANCE

SCIC

Member/shareholder Member/shareholder

Level 1 Subsidiary

Limited Liability Company Joint Stock Company

Member/shareholder

Subsidiaries at all levels

Source: [67]

Operational mechanism: Because SOEs are organized under different legal forms, associations and establishment decision levels, the implementation of the state ownership function of state agencies in reality today is different according to the type of SOE, both in terms of subject and implementation content; specifically:

For 100% state-owned enterprises established by the Prime Minister: As the sole state shareholder in the enterprise, the Prime Minister will decide on all matters related to the enterprise, with decentralization of tasks to the Board of Directors/Board of Members, and representatives of state capital based on the advice of ministries, branches, and localities. For example, the Prime Minister exercises the rights of the state owner on: establishment, reorganization, dissolution, and conversion of ownership of the company; Charter, investment projects, goals, strategies, long-term plans, and business lines of the company; appointment, re-appointment, dismissal, removal, reward, and discipline of the Chairman and members of the Board of Members of the company; approval for the Board of Members of the company to decide on investment in the establishment of new units, reorganization, dissolution, and conversion of ownership of units owned by the company with dominant capital contribution.

For 100% state-owned enterprises established by decision of the Ministry/Provincial People's Committee: This type of enterprise is mainly a single-member LLC converted from a state-owned enterprise directly serving national defense and security, performing public service tasks; parent company in a state-owned corporation, state-owned company in the parent company - subsidiary model, independent state-owned company, agricultural company, forestry company, state-owned farm and forestry farm established by decision of the Ministry/Provincial People's Committee. The implementation of the state ownership function with relatively concentrated enterprises, ministries, branches and localities perform the state ownership function as in the case of 100% state-owned enterprises established by decision of the Prime Minister.

For multi-owned SOEs: Currently, there are very few equitized enterprises in ministries, branches and localities that have not transferred state capital to SCIC for management. Unlike 100% state-owned enterprises, the implementation of the state ownership function for multi-owned SOEs is through the mechanism of sending direct representatives to exercise the rights of state shareholders at the General Meeting of Shareholders/Conference.

members of the enterprise without division between state agencies.

3.2.2. The current state ownership model in state-owned enterprises in Vietnam is organized according to a mixed model.

3.2.2.1 Period 1995 to 2005:

State ownership model at SOEs: is a mixed model in which the state ownership representatives at SOEs are the sector management ministries and the Ministry of Finance, specifically:

Period from 1995 to October 1999: The sector management ministry and provincial People's Committees exercised the rights of the state owner to decide on the objectives, tasks, strategies, plans, personnel and issues beyond the authority of the SOEs. The Ministry of Finance (General Department of State Capital and Asset Management at Enterprises) performed the function of managing state capital and assets at SOEs.

After October 1999: The Government reorganized the General Department of State Capital and Asset Management at Enterprises into the Department of Enterprise Finance. In which, the Ministries and branches perform the function of managing state capital and assets at enterprises, the Provincial People's Committees, the Ministry of Finance (Department of Enterprise Finance) only performs the function of state management of enterprise finance nationwide, and partially performs the function of state ownership at SOEs.

The provincial People's Committee performs all functions of managing state capital and assets at state-owned enterprises established by the provincial People's Committee. The "decentralized model" for state-owned enterprises established by the Ministry and provincial People's Committee (period 2000-2005 after the dissolution of the General Department of State Capital and Asset Management at Enterprises).

Operation Model: The governing Ministry (Ministry of specialized management)/People's Committees of localities shall exercise the rights of the State owner over SOEs in coordination with other Ministries according to the decentralization and delegation of authority of the Government. Rights of the owner

State ownership is decentralized and delegated according to the 1995 State-owned Enterprise Law and the 2003 State-owned Enterprise Law.

Implementation apparatus: The Ministries and branches in charge have Departments assigned to monitor and advise on the management of state capital at SOEs, the localities assign the Department of State Capital and Asset Management at Enterprises, when the General Department of State Capital and Asset Management is dissolved, the function of the Department of State Capital and Asset Management at Enterprises is assigned to the local Department of Finance (enterprise management department). During this period, there is close coordination mainly between the Ministry in charge (specialized sector) and the Ministry of Finance, at the local level, the Department of Finance advises the Provincial People's Committee.

3.2.2.2 Period 2005-2012

State ownership model in SOEs: The mixed model in this period has many new adjustments compared to the period 1995-2005, specifically demonstrated through the fact that large corporations and general companies under the Government, the remaining enterprises under ministries and localities, the State Capital Investment Corporation (SCIC) (a centralized model in the form of an enterprise) are assigned to exercise state ownership rights over enterprises of localities and ministries after equitization (small and medium-sized enterprises, in fact SCIC represents state ownership in SOEs of about 5% of the total state capital in SOEs). The Prime Minister performs the tasks and powers of representing the owner of economic corporations, state corporations and ministries, provincial and municipal People's Committees for enterprises established by these agencies;

Operational mechanism: In order to increase the autonomy and self-responsibility of SOEs, the National Assembly promulgated the Law on State-owned Enterprises in 2003 (effective from July 1, 2004), replacing the Law on State-owned Enterprises in 1995. The Law stipulates that enterprises in which the State owns all charter capital are called state-owned companies.

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