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Hiếu Mạnh wrote this Vietnamese article, published in Luật Khoa Magazine on May 20, 2025. Thúc Kháng translated into English for The Vietnamese Magazine.

Việt Nam is gradually phasing out its reliance on labor-intensive foreign direct investment (FDI), focusing on attracting “green FDI” and high-tech investments. This transition involves specific implementation steps and presents several inherent challenges and opportunities. As emphasized by General Secretary of the Communist Party Tô Lâm at the 6th Việt Nam National Forum on Digital Technology Enterprise Development in January 2025, if the strategy is not changed and fails to attract more FDI, the country would forever remain as a low-value “assembly and processing base” or even become a “technology landfill.”

Leverage from New Free Trade Agreements In recent years, Việt Nam has reshaped its FDI strategy, now giving top priority to “green FDI”—high-tech, eco-friendly, and low-emission projects. This shift is strongly supported by the new-generation free trade agreements (FTAs) Việt Nam has signed and enacted, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the EU-Việt Nam Free Trade Agreement (EVFTA), and the Regional Comprehensive Economic Partnership (RCEP).

These agreements do more than just expand export markets; they serve as powerful tools to promote environmental and labor standards, effectively filtering out less desirable investment flows. This has already led to billions of USD in investments for Việt Nam's renewable energy and eco-industrial zones, with notable examples like the Osterd wind power project in Bình Thuận and B.Grimm Power in Tây Ninh.

Taking the CPTPP as an example, since taking effect in 2019, Việt Nam's exports to member nations surged to 53.6 billion USD in 2022, an increase of 17.3% compared to 2018, despite the global pandemic. While the CPTPP's significant tariff reductions enhance the global competitiveness of Vietnamese products, it also introduces many non-tariff barriers such as strict rules on environmental protection, green production, and social responsibility.

The agreement itself features provisions in Chapter 20 with 23 that regulate environmental commitments. Member countries are also bound to implement three crucial international environmental treaties and promote transition to a low-emission economy.

This directly aligns with Việt Nam's pledge at the 2021 United Nations Climate Change Summit (COP26) to “reach net zero emissions by 2050,” a commitment that is forcing the nation's legal system and investment model to change.

Incentives for Green FDI From Jan. 1 2025, new regulations were implemented and several amendments were made to the Law on Planning, the Law on Investment, the Law on Public-Private Partnership Investment, and the Law on Bidding, effectively streamlining administrative procedures and boosting decentralization in investment activities. These changes are also expected to attract green FDI capital.

These new regulations create a highly favorable environment for foreign investors, particularly through special “green lane” procedures. This expedited process—reducing document processing and investment registration certificate issuance to just 15 days— benefits projects in high-tech, research and development centers, semiconductors, chips, and artificial intelligence (AI).

Concurrently, the government has established an Investment Support Fund, financed by the global anti-tax erosion mechanism. This fund provides financial backing for large, high-tech investment projects, especially those from multinational corporations. Support includes direct payments for training costs (up to 50%), investment in social infrastructure (up to 25%), and even incentives for producing high-tech products (up to 3%), among other items.

At the 12th Party Central Committee's National Conference in December 2024, Prime Minister Phạm Minh Chính praised Việt Nam's impressive economic performance. As of November 2024, Việt Nam's total import-export turnover hit an estimated 715 billion USD, marking a 15.3% increase from the previous year, alongside a trade surplus exceeding 23 billion USD. Projections indicate the full-year figure will reach 807.7 billion USD, setting a new record.

FDI continues to be a major success story, solidifying Việt Nam's position among the top 15 developing countries globally for FDI attraction. Between 2017 and 2021, Việt Nam drew nearly 9 billion USD in FDI into green sectors, primarily renewable energy and manufacturing equipment supporting sustainable development (MPI Việt Nam and BCG, 2023).

Many localities and businesses are also actively pursuing projects aligned with this green investment focus. For instance, on May 17, 2025 Bình Dương Province and Becamex IDC Corporation began construction on the Cây Trường Industrial Park and the expanded the Bầu Bàng Industrial Park. These two projects have a total investment of over 5,459 billion dong across 380 hectares of clean land. They are also expected to create 35,000 jobs and contribute significantly to the goal of net-zero emissions.

Việt Nam is making significant developments in its green energy transition, exemplified by the Block B – Ô Môn gas-to-power project chain, which began construction in September 2024. This massive project represents one of Việt Nam's largest natural gas initiatives, with reserves of up to 107 billion m³ and a 12 billion USD investment. It is expected to be a vital source of fuel for the nation's gas-fired power plants and petrochemical industry.

The country’s commitment to green development also extends into the foreign direct investment (FDI) sector. For instance, Bhardwaj Vinay, the General Director of Indorama Ventures Ngọc Nghĩa Việt Nam Company, noted that his firm invested in a plastic packaging factory in Hưng Yên, dedicating 15 million USD of that capital to 'green' components like a solar power system and a circular economy model. This strategic investment aims to satisfy both Việt Nam's increasingly stringent environmental standards and the global market's growing demand for sustainable practices.

This focus on quality investment is paying off. Data from the Foreign Investment Agency shows that FDI into Việt Nam reached 6.9 billion USD in the first two months of 2025, a substantial 35.5% increase over the same period in 2024. Disbursed FDI also grew by 5.4%, totaling 2.95 billion USD.

Replanning Existing Industrial Zones While Việt Nam generally shines in FDI attraction, the reality of the situation is more complex than how it appears. Hồ Chí Minh City, for example, saw its total FDI plummet to just 2.2 billion USD in 2024, a sharp 39.5% decrease compared to 2023, according to data from the city’s People’s Committee. Interestingly, while the number of FDI projects in the city increased by 14.7% to 1,285, their total registered capital significantly dropped by 18.3%, reaching only 475 million USD.

This decline stems largely from a shortage of industrial land in Hồ Chí Minh City, coupled with slow progress in developing new industrial zones. This makes it challenging to attract large-scale FDI projects, even though nearly 6,000 hectares of industrial land have been planned. Of this, about 1,500 hectares are currently involved in legal disputes or face land clearance issues.

Furthermore, many projects in Hồ Chí Minh City remain bogged down by administrative procedures and delayed approvals, even after the Government has approved investment policies. For instance, in August 2024, Mercedes-Benz Việt Nam Co., Ltd. urgently requested the Hồ Chí Minh City People’s Committee to expedite the approval of its investment extension, given its land lease was set to expire in four months. Despite government approval of the investment policy on Sept. 25, 2024, the company was still unable to complete local procedures by mid-December 2024.

A similar situation affected Castrol BP Petco Co., Ltd., which waited over two months for a response from city authorities regarding its investment registration certificate amendment in October 2024.

The transition towards green FDI also creates difficulties for labor-intensive projects. Hồ Chí Minh City is actively replanning existing industrial zones into eco-industrial parks, high-tech zones, and mixed-use service urban areas. At the same time, 14 new industrial zones are being pushed to suburban areas, designed as smart, regionally connected hubs.

An Attempt to Filter FDI Between 2015 and 2022, Việt Nam ranked second among five developing economies in attracting investments for renewable energy with approximately 106.8 billion USD, as reported by the United Nations Conference on Trade and Development (UNCTAD). However, data from the Ministry of Planning and Investment indicates that the majority of FDI projects still reside in high-emission, low-added-value sectors.

In response, the Government unveiled a new set of criteria in April 2024 to assess FDI effectiveness, incorporating five critical environmental benchmarks. These include:

The number of energy-saving measures by foreign-invested economic organizations The number of certifications of environmental management under TCVN ISO 14001 or ISO 14001 for production, business, and service establishments The growth rate of the number of such certified establishments under TCVN ISO 14001 or ISO 14001 The number of establishments that comply with environmental protection laws The share of greenhouse gas emissions from foreign-invested economic organizations among facilities required to conduct greenhouse gas inventories These criteria are designed to function as a “filter” that phases out obsolete factories and ensures that FDI contributes to Việt Nam's growth quality and long-term sustainability. This green transition necessitates restructuring within many FDI enterprises, leading to a cut in low-skilled labor and a shift towards automation and higher-skilled roles.

However, the path to green transition faces significant hurdles. A mid-2024 survey by the Private Economic Development Research Board (Board IV), encompassing 2,734 businesses, revealed that a substantial 64% had not initiated any preparations for green transition. Only 5.5% had started to cut emissions in specific activities, and a mere 3.8% were actively monitoring and publicly reporting their annual emission reductions. A key barrier, reported by 50% of businesses, is difficulty in accessing capital. Furthermore, securing specialized human resources for emissions reduction remains a major challenge for both domestic and foreign-invested firms, given that this is a new and highly specialized field.

While FDI capital flows into Việt Nam are being reoriented towards green and sustainable development, achieving such ambitious goals requires more than just attractive incentives. It demands genuine institutional reform, streamlined administrative procedures, a higher quality workforce, and strong, long-term commitments to investors.