Ho Chi Minh City needs a special mechanism to develop the International Financial Center

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Nguyen Huu Huan, Head of the Department of Financial Markets, University of Economics, Ho Chi Minh City

Ho Chi Minh City owns many outstanding advantages, which are the foundation for Ho Chi Minh City to grasp the trend of the times and turn itself into a financial centre reaching an international level. What do you think about this?

Compared with Singapore - one of Asia's two leading financial centres, Ho Chi Minh City has some great points to develop into an international financial centre that is not inferior to your country. For example, corporate income tax in Singapore is at 17% (excluding policies to encourage start-ups), while in Vietnam, it is at 20%. This is not too much of a difference if tax is reduced. The cost of setting up a business in Vietnam is around VND five million, while in Singapore, it is more than VND 120 million.

In Singapore, a business must have a native speaker as a director, which costs money to hire. Maintaining a business in Singapore costs about US $ 10,000 - 20,000, while in Vietnam, it is about US $ 2,000 - 3,000. Vietnam has a competitive advantage in terms of costs; for example, bank money transfer fees are approaching zero. As for businesses in Singapore, all costs are calculated in cash. Although Singapore has low taxes, service fees are high.

Besides, our country's financial system is also quite dynamic compared to many developed countries. Currently, people can transfer money 24/7 quickly, while not many countries can.

On December 30, 2022, the Politburo issued Resolution 31-NQ/TW on directions and tasks for the development of Ho Chi Minh City until 2030, with a vision to 2045, including promulgating policies to promote the formation and development of the Ho Chi Minh City International Financial Center. This centre is both a goal and a solution for the city to fulfil its role as the economic "headquarters" of the country. However, to soon form the International Financial Center in Ho Chi Minh City, it is necessary to define the goals and orientations for the construction process of this International Financial Center to outperform existing or competitive financial centres with those centres and overcome existing barriers.

Could you tell us about the barriers Ho Chi Minh City, particularly, and Vietnam in general, face while building the International Financial Center?

Building the International Financial Center, it is necessary to complete three pillars: the capital market, the banking money market and the derivative commodity market. In my opinion, the lack of free flow of capital is currently the biggest barrier for foreign investors to invest in Vietnam. Therefore, if there is a need for priority policies, the most important thing is that capital flows must be freely circulated. Because there is the opening of capital flows, the financial market can develop.

The financial system has three elements: free capital flows, independent monetary policy, and fixed exchange rates. It is the impossible trinity of monetary policy. Theoretically, a country can only choose two out of three factors. In Vietnam, monetary policy management is slightly biased towards the exchange rate and monetary policy. In the path of financial liberalization, Vietnam is controlling capital flows. It can be said that the inflow of capital is easy, but it is difficult to go out, which is a huge limitation for Vietnam in building an international financial centre.

On the other hand, the difficulty in attracting foreign investment flows is also why it is extremely difficult for us to become an attractive market for investors. Therefore, advantages such as low cost and geographical location will no longer be needed when we can open capital flows.

Regarding the derivatives market pillar, this pillar is completely absent. Even the most elementary commodity electronic trading floor has not yet formed. Vietnam has the leading advantage in exporting agricultural products, but we do not have a mechanism to attract businesses to join the commodity exchange. Most of Vietnam's agricultural products are exported in raw form. Businesses buy products and bring them to the international market under the brand name "Made in Thailand" or Malaysia... This shows that we have not standardized goods or built a good brand. On the derivatives exchange, although there are transactions, it is still gloomy and not commensurate with the potential of a country with strengths in agricultural products.

In addition, the major international financial centres worldwide also have a close relationship with seaports. Because the financial centre plays an important role in international shipping. Therefore, Vietnam needs to develop logistics services to become an international transhipment port, as the sea silk road must go through Vietnam.

So in your opinion, to accelerate the formation of the International Financial Center, what specific mechanisms and policies does Ho Chi Minh City need in the coming time?

Although Ho Chi Minh City is considered to have many advantages in developing the International Financial Center, it still needs a strong breakthrough in mechanisms and policies. The first is a specific mechanism for capital flows that can flow freely and restricts administrative procedures in calling for capital and investment.

Secondly, a policy encourages foreign enterprises to set up businesses in Vietnam, such as tax incentives, especially technology enterprises.

Third, it is necessary to work with big technology companies worldwide to open their doors and cooperate with companies in Vietnam. Currently, most are limited.

Fourth, it is necessary to have a mechanism to connect with major financial centres worldwide. In addition, it is necessary to have a legal framework to test (sandbox) new financial technology models such as virtual currency, chain technology, etc.

Thank you, Sir!