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Hiếu Mạnh, Huỳnh Kha, and Lam Hồng wrote this Vietnamese article, published in Luật Khoa Magazine on May 12, 2025. Thúc Kháng translated it into English for The Vietnamese Magazine.

Following the economic renovation period, Việt Nam attracted foreign direct investment (FDI) through the establishment of export processing zones and by implementing numerous “red carpet” policies to attract FDI companies, ranging from tax benefits to leveraging its abundant labor resources. This strategy boosted domestic economic growth and created employment opportunities for local workers.

However, this approach also produced a generation of manual laborers who work long hours in factories for minimal wages—workers whose incomes are so modest they must carefully budget for basic necessities like vegetables and fish.

Rolling Out the “Red Carpet” for FDI Companies Việt Nam has utilized key policies to attract FDI companies, primarily offering tax incentives and land for business and production.

Since introducing the Law on Foreign Investment in 1987, Việt Nam has provided attractive incentives. For example, FDI enterprises can receive corporate income tax exemptions for up to four years, followed by a 50% reduction for the next four years, depending on the sector and location. FDI companies have also been exempt from import taxes on machinery, equipment, and production materials for export markets.

Over time, Việt Nam has gradually reduced its standard corporate tax rate, from 28% (2001-2008) to the current 20% (from 2016 onward). Certain priority sectors like high-tech, R&D, and supporting industries are eligible for even lower preferential tax rates, as well as various tax exemptions or reductions.

In October 2021, Việt Nam introduced further incentives through Decision No. 29/2021. Investors with capital of 30 trillion dong or more in prioritized sectors can now enjoy a 9% corporate tax rate for up to 30 years, along with full tax exemptions for 5 years and a 50% reduction for the following 10 years.

Additionally, Việt Nam provides land rental support. From 2011-2014, the government reduced land rental fees by half for businesses in select sectors if they met specific conditions. In 2017, Decree No. 35/2017 offered more favorable land use terms in economic and high-tech zones. The previously mentioned Decision No. 29/2021 also allows for 18-20 year land/water surface rent exemptions or 55-75% reductions.

Effective 2024, Việt Nam has begun applying the global minimum tax policy, following a resolution passed by the National Assembly. Specifically, this policy will target multinational companies with total consolidated revenue of approximately $800 million or more in at least two of the past four fiscal years. These companies will be subject to a minimum corporate tax rate of 15%. Implementing this global minimum tax is expected to generate around 14.6 trillion VND in additional annual revenue for the Vietnamese government.

This strategic application of tax incentives and land support policies over the past decades has yielded clear, positive results. The total amount of registered foreign direct investment in Việt Nam has increased dramatically, rising from a few hundred million US dollars per year in the early 1990s to over $500 billion by 2025.

As of March 2025, Việt Nam had 42,760 valid FDI projects with a total registered capital of approximately $510.5 billion and realized capital exceeding $327.5 billion.

Furthermore, foreign direct investment accounted for a substantial 18% to 25% of Việt Nam’s total capital for social development investment from 1991 to 2018.

Many well-known global corporations such as Samsung, Toyota, Honda, and Mitsubishi have established a presence in Việt Nam. The export-import turnover of the FDI sector accounts for an increasing share of the country's total exports, reaching 72.6% in 2017.

FDI companies have also made significant financial contributions to Việt Nam’s state budget. In 2012, their payments exceeded 83 trillion VND, increasing to over 111 trillion VND in 2013, more than 123 trillion in 2014, over 140 trillion in 2015, and 161 trillion in 2016. By 2017, FDI companies accounted for 14.5% of Vietnam's total state revenue.

The main sectors attracting FDI include manufacturing and processing, which account for around 60% of total capital. Other key sectors are real estate, renewable energy, and logistics services. The largest investors are South Korea, Japan, Singapore, and more recently, China.

While these positive outcomes demonstrate the effectiveness of Việt Nam’s incentive policies, combined with the country's low labor costs and geographic advantages, the long-term use of such policies has also brought to light significant adverse consequences.

Prolonged corporate income tax exemptions and reductions have resulted in significant revenue losses for the state budget, especially at a time when Việt Nam is seeking to increase spending on infrastructure and social welfare.

Additionally, the difference in incentives between FDI companies and domestic firms has raised concerns about distorting the competitive environment, potentially putting local businesses at a disadvantage, particularly those in the same production sectors.

Furthermore, some FDI projects have been observed to have low added value, rely heavily on unskilled labor, and fail to meet goals of technology transfer and sustainable development.

Cheap Labor An often overlooked but significant factor in Việt Nam’s FDI incentive system is the advantage of low labor costs. Although not explicitly codified in tax or land policies, Việt Nam’s inexpensive workforce continues to be viewed as a powerful "natural incentive" that strongly attracts foreign investors.

For many years, this labor cost advantage has been one of the primary reasons multinational corporations have chosen Vietnam as a destination to establish manufacturing facilities, particularly in labor-intensive industries like textiles, footwear, and electronics assembly.

This advantage dates back to the early 1990s, when Việt Nam opened its economy following the renovation policy. At that time, the regional minimum wage was only a few hundred thousand VND per month. Việt Nam’s labor force was young, abundant, and desperate for employment opportunities, allowing companies to keep wages extremely low. This dynamic prompted numerous investors from South Korea, Taiwan, and Japan to shift their production operations to Việt Nam, especially after labor costs in China began rising rapidly in the 2000s.

Việt Nam’s "cheap labor" incentive was also bolstered by the country's favorable population structure, with the majority of people being of working age between 2000 and 2020. Additionally, FDI policies focused on attracting investment in light industries, which could generate numerous jobs and indirectly supported an economic development model reliant on low-cost labor.

The growth of industrial zones in the suburbs and key economic hubs of the South and North led to a significant wave of migration from rural provinces to cities, as young people from regions like Nghệ An, Thanh Hóa, Thái Bình, and Cà Mau sought employment in places like Bình Dương, Đồng Nai, Bắc Ninh, and Hải Phòng.

This group of migrant workers eventually became the primary labor force in FDI factories. Their willingness to work for minimum wages, with few demands, and acceptance of living in small, temporary rental accommodations around industrial parks, helped keep Việt Nam’s actual labor costs even lower than the official minimum wage. While largely unplanned, the migration inadvertently created a steady supply of cheap labor, which enabled large-scale production needs to be met without the government having to offer special support policies.

While Việt Nam’s low labor costs have been an important factor in attracting foreign investment, this heavy emphasis on cheap labor is now showing clear limitations. Many FDI companies only use Việt Nam primarily for simple outsourcing, without investing significantly in new technologies or helping to improve productivity and skills among local Vietnamese firms. This risks trapping the Vietnamese economy in a "low-value added" cycle, dependent on early-stage manufacturing rather than developing high-tech or advanced service sectors.

The "cheap labor" strategy also places immense pressure on the workers themselves. According to a 2024 survey by JETRO, factory workers in Việt Nam earned only about $250 USD per month on average - less than half the wages in China ($531), one-eighth of Singapore ($2,000), and lower than in Thailand ($447) or Malaysia ($431).

Việt Nam is increasingly being viewed as a potential replacement for China as a global low-cost labor market, as the US-based financial site, The Motley Fool, has noted. For example, Việt Nam is now the world's second largest textile exporter, reaching $43.5 billion in export value in 2024. The textile industry alone has grown from 1.8 million workers in 2012 to around 3 million in 2024, according to the Việt Nam General Confederation of Labor.

However, the working conditions and wages in this sector remain poor. Only around 735 out of 7,000 textile companies pay an average monthly salary of 10.4 million dong ($450 USD) - still lower than the national average income of about 11.5 million dong, and below wages in other manufacturing fields like 10.58 million dong or in electronics at 12.54 million dong. Many textile workers must endure harsh conditions and frequent overtime.

In the 2023–2024 consumer survey in Việt Nam and the 2024 living wage report by the Asia Floor Wage Alliance (AFWA), more than 2.7 million Vietnamese workers are employed in the garment industry, and most of them are women.

In fact, over 50% of households with someone employed in the garment industry live on less than 10 million dong ($430 USD) per month, with about 29% earning between 5-10 million dong ($215-$430 USD). The average monthly income, including bonuses and allowances, is around 6 million dong ($260 USD), and 33% of surveyed workers said they receive less than 4 million dong ($175 USD) per month as a base salary.

The Curse of Age 35 Within FDI companies, there is an unofficial term known as the "curse of age 35" that refers to the challenges faced by workers once they reach 30 to 40 years old.

According to the former Ministry of Labor, Invalids and Social Affairs, workers in the age range of 35 to 40 often encounter difficulties finding new employment. Data from the Center for Labor Market Information and Forecasting in Ho Chi Minh City demonstrates that companies tend to heavily favor younger applicants, with 60.47% of demand being for workers under 25 years old, 34.59% for those 25 to 34 years old, and only 4.94% for the 35 to 49 age group.

A survey by the Vietnam General Confederation of Labor found that the average age of workers is 31.2 years, with the typical employee staying at a company for around 6-7 years. Once they reach 35 years old, workers not only face the risk of being laid off due to perceived lower productivity, but many also choose to voluntarily quit their jobs. This is often driven by the strain of poor health after extended periods of mandatory overtime in an effort to earn higher incomes.

Many companies now use a method called "soft firing" to remove older workers. Rather than directly ending their contracts, they will reassign these workers to positions with no income or cut their overtime, effectively forcing them to quit because they can no longer earn enough to support themselves.

Another tactic used is changing the salary system to be more dependent on individual productivity, which often results in lower pay for veteran employees. The regional minimum wage is set by the government to prevent workers from being paid too little. However, in reality, companies consistently try to maximize profits and will cut any other costs that impact their bottom line.

According to a survey by the Việt Nam General Confederation of Labor, the income of 75.5% of workers is not enough to cover their living expenses, and 17.3% of surveyed workers said they had to regularly borrow money. Many experienced workers have chosen to simply take a one-time social insurance payout and leave the labor force entirely, like Trần Thị Đào from Nghệ An who quit after 10 years with a salary of just over 4 million dong per month.

These exploitative practices have contributed to a wave of collective work stoppages and labor disputes in recent times. In early 2022, there were 28 cases across 11 provinces, including a major strike by 16,158 workers at Pouchen Việt Nam Co., Ltd. in Đồng Nai who disagreed with the company's decision to reduce the 2021 year-end bonus. Similar collective actions occurred at companies like Viet Glory Co., Ltd. (footwear) in Nghệ An and Vienergy Co., Ltd. (Taiwan, footwear) in Ninh Bình, citing grievances such as changes to payment methods, bonus cuts, poor meal quality, and deteriorating working conditions.

Working Overtime for Survival According to data compiled by journalists from Luật Khoa Magazine based on information from the former Ministry of Labor, Invalids and Social Affairs, the average monthly income of workers from 2020-2024 can be summarized as follows:

The Đà Nẵng Labor Federation reported that in 2024, there were around 72,000 workers in the city's industrial/export processing zones earning an average monthly income of 7.32 million dong. However, the Federation's leaders stated that even with this level of pay, workers still struggle to cover their daily living expenses.

For example, Vàng Thị Sú, an employee at JV Co., Ltd. in Bắc Ninh Province, had to work 28 days per month, including night shifts and 150.5 hours of overtime on four Sundays, to earn over 19 million dong for the month. Without that extensive overtime, her base salary and allowances would have been only around 6.6 million dong.

Similarly, Phùng Thị Lan, a worker at AC Co., Ltd., also in Bắc Ninh, needed to work 119.5 overtime hours in January 2025 to raise her actual monthly income from the standard 6.4 million dong to over 16 million dong, with nearly 8 million dong coming just from overtime pay. She only had two days off that month.

According to the Asia Floor Wage Alliance (AFWA), an income of 11 million dong per month is considered low because the cost of living continues to rise. To ensure a decent minimum standard of living for garment workers in Asia, a living wage should be at least 12.4 million VND per person per month.

Recent surveys show that the living conditions of workers in Hồ Chí Minh City are becoming more difficult due to rising prices, while wages remain low. With a common base salary of only 5-6 million dong per month, most workers are forced to work 10 to 16 hours a day just to increase their income to around 8-10 million dong. However, after paying for rent, food, transport, and sending money home, there is almost nothing left.

Many people live in tiny rental rooms of only 5 to 10 square meters, using shared toilets, with rent starting from just 1 million dong per month. The infrastructure in worker-dense areas like Tân Tạo (Bình Tân District), District 7, and District 8 is still underdeveloped and prone to flooding during the rainy season. Due to tight finances, workers often have to buy cheap, low-quality food from unknown sources near the industrial zones.

In terms of demographics, most workers in Hồ Chí Minh City are young migrants from the Mekong Delta provinces, many with low education levels or no professional qualifications. There have even been cases of 15 and 16 year olds lying about their age to start working early. The long work hours and low wages often force workers to live separately from their children, sending them back to their hometowns to be cared for by grandparents.

During brief holiday periods, many workers resort to riding motorbikes for hundreds of kilometers to visit their families in order to save on travel costs. Some are even forced to forgo returning home for Lunar New Year, as they are afraid of spending too much money on the journey.

Even after many years, the living conditions for workers in Ho Chi Minh City have shown little improvement. In addition to the instability of their incomes, they continue to face significant health risks, unsanitary living environments, and a severe lack of access to basic social services.

The Wave of FDI in Việt Nam and Cheap Labor – Part 2: Courting Capital from FDI Companies

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