Vietnam bets on science and technology to escape the middle-income trap, ETCIOSEA

For decades, Vietnam’s economic story was straightforward: cheap labour, abundant natural resources, and enough comparative advantage to attract waves of foreign manufacturing. That story is running out of road. Automation is eroding the cost edge faster than policymakers anticipated, and the spectre of the middle-income trap looms over an economy that needs a new engine to keep growing.The third plenum of the Party Central Committee has now placed a formal bet on science, technology and innovation as that engine, adopting a resolution to rebuild Vietnam’s development model around these pillars. The political signal is clear. Whether the institutional machinery can match it is another question entirely.The diagnosis: cheap advantages are disappearingDr Le Xuan Sang, Deputy Director of the Institute of Vietnam and World Economy under the Vietnam Academy of Social Sciences, has been blunt about what is at stake. Speaking in the context of the plenum’s resolution, he argued that Vietnam’s traditional growth drivers — low wages and natural resource extraction — are losing their effectiveness as round-the-clock robotics and automation deliver productivity gains that human labour simply cannot match at comparable cost.Sang’s argument is that without a decisive lift in scientific and technological capability, Vietnam risks permanent residency in low-value manufacturing segments. The middle-income trap, in his framing, is not a distant theoretical risk. It is the default outcome if policy stays incremental.He pointed to several structural problems that have blunted Vietnam’s innovation ambitions so far. Science and technology spending sits below 2 per cent of GDP, a figure that places Vietnam well behind regional peers that have successfully climbed the value chain. Disbursement mechanisms for research funding are slow and bureaucratically tangled, discouraging researchers from pursuing ambitious projects. Innovation awareness among businesses and across broader society remains thin.But the most pointed criticism Sang directed at the state budget framework: it operates under a “capital preservation” doctrine that demands technology investment be essentially risk-free. That posture is fundamentally incompatible with how innovation actually works. Venture-style research, by definition, involves failure. When the funding system cannot tolerate failure, researchers and companies stop taking the risks that produce breakthroughs. The result is a system that protects its balance sheet while sacrificing its future.What a workable policy shift would requireSang outlined three broad directions that he believes must move together if resolutions 57-NQ/TW and 68-NQ/TW are to produce real change rather than remain aspirational documents.The first is financial. Disbursement procedures for science and technology projects need to be stripped back sharply. The prevailing management philosophy of “cost control” has to give way to what Sang called “development facilitation” — a posture that makes explicit room for experimental risk rather than penalising it.The second is investment scale. State budget allocations for science and technology need to rise steadily, but public funding alone is insufficient. Market-based capital channels must be opened more deliberately. Sang was specific on this point: Vietnam’s stock market should become a meaningful source of medium and long term capital for technology companies, a role it has largely avoided. Right now, tech firms with long development horizons have few domestic funding options beyond state grants and bank loans, neither of which is well suited to the risk profile of innovation.The third is ecosystem depth. Technology incubators, startup investment funds and talent incentives need to be built out at scale. Sang argued that only by shifting decisively from a management-oriented mindset to one genuinely focused on development facilitation can Vietnam fully mobilise its resources. In an interview with VietnamNet, he said: “Only by shifting decisively from a ‘management’ mindset to a ‘development facilitation’ one can Vietnam fully unleash its resources and turn science and technology into a lever that ushers the economy into a new phase.”Shipbuilding as a test case for industrial ambitionOne sector where these tensions play out with particular sharpness is shipbuilding. Engineer Hoang Hung, Chairman of the Vietnam Shipbuilding Industry Association under the Vietnam Union of Science and Technology Associations, laid out what a science and technology-driven industrial upgrade would need to look like in practice for his sector.His starting point was clean fuel vessels. Vietnam’s shipyards need mechanisms to support research into and technology transfer for vessels powered by liquefied natural gas, methanol and hybrid propulsion systems. This is not optional: the International Maritime Organisation has been tightening emissions standards progressively, and the trajectory is towards stricter rules, not looser ones. Vietnamese builders that cannot offer green-compliant vessels will find themselves shut out of the most valuable segments of the global order book.Hung also called for shipyards to digitise their design and production processes, adopting digital simulation tools and automated production lines. On the business side, he wants preferential credit and capital guarantees to help shipbuilders upgrade physical infrastructure, paired with deliberate cultivation of a domestic supporting industry supply chain covering steel, machinery and marine equipment. A higher share of locally made components would reduce exposure to import disruptions and improve margins.On market strategy, Hung’s argument is that Vietnam needs to sequence its ambitions carefully. Domestic demand from maritime transport, oil and gas services and offshore renewable energy should provide a stable order base before Vietnamese builders attempt to compete head-on with the major regional hubs in South Korea and China. Trying to go global without a solid home market foundation is a formula for a fragmented, undercapitalised industry.Workforce gaps and the skills deficitBoth Sang and Hung converged on one concern: the workforce. Vietnam’s shipbuilding training programmes, in Hung’s assessment, need a full redesign to meet international standards. He proposed scholarships tied to job commitments as a way to draw students into the sector, alongside much tighter collaboration among universities, professional associations and shipyards so that engineers and technicians receive hands-on training that keeps pace with technological change.The broader workforce challenge is not unique to shipbuilding. Across Vietnam’s industrial base, there is a significant gap between the skills the economy currently produces and those a technology-driven growth model demands. Closing that gap requires both curriculum reform and industry engagement, and it takes time that the competitive environment may not generously provide.Digital transformation adds another layer. Hung called for shipyards to gradually digitise the full design, production and quality management chain, bringing in artificial intelligence for design optimisation and predictive maintenance. Done properly, he said, this can cut construction times and improve precision, which are the two variables that determine whether a shipyard wins or loses on international tenders.The structural bet and what it will take to win itThe third plenum’s resolution is a statement of direction, not a guarantee of outcome. Vietnam has adopted ambitious industrial and technology policy frameworks before, and the distance between a well-worded resolution and a functioning innovation economy is considerable. The real test will come in implementation: whether the financial mechanisms Sang described actually get reformed, whether state budget allocations for science and technology rise in practice rather than only on paper, and whether the stock market develops the instruments needed to channel long-term capital into technology firms.Shipbuilding offers a concrete near-term signal. If Vietnam’s yards can successfully develop and build clean-fuel vessels that meet IMO standards, it will demonstrate the kind of technology absorption capacity the broader economy needs. If the sector remains dependent on imported designs and components, it will confirm that the structural barriers Sang identified are proving more durable than the resolutions designed to break them.Vietnam’s window to make this transition is not indefinite. Regional competitors are moving, automation is accelerating, and the cost advantages that built the country’s manufacturing base are compressing year by year. The third plenum has named the right problem. The question is whether the institutions implementing its resolution are equipped to solve it.