Looking for a niche market and building a sandbox with breakthrough policies can be a pathway to help gradually turn HCMC into an international financial center capable of supplying cross-border financial services. This, however, is a long-term vision, while in the near term, it is important to revise policies to attract foreign capital.

Do it differently

“There are two ways to develop an international financial center in HCMC. The first way is to outperform existing centers in Asia like Singapore and Hong Kong; the other way is to do it differently,” said Dr. Nguyen Huu Huan at the University of Economics HCMC at a roundtable on “What special mechanisms are needed for HCMC to develop an international financial center?” held by the Saigon Times Group early this month.

The “dream” to turn HCMC into an international financial center is not a new one, but it has been repeatedly revisited over the past three years at a time when HCMC is seeking special mechanisms to help tackle existing difficulties and create new growth momentum to attain a better position in the global financial map.

The problem is how to figure out a stepping stone for HCMC to become a regional financial center first before going global. A pathway recommended by experts at the aforesaid rountable is to comprehend global demands and establish a niche market, especially for new services. Such an approach may help make HCMC more appealing, instead of placing the city on the collision course with long-established international financial centers in the world.

“In countries without internal economic strength, a regulatory niche market should be an option,” said Dr. Phung Huong Giang, a lecturer and a researcher at the ISC Paris Business School. The expert recommended the niche market to include provision of digital financial products or non-banking financial services, alongside the development of an ecosystem for the niche market and upgrade of the infrastructure.

Also regarding the niche market. Dr. Huan referred to the central bank digital currency (CBDC). The global financial market is still awaiting initiatives for building a cross-border transaction platform, and therefore, if Vietnam opts for a different approach, it can create a sandbox for a transaction and conversion center for CBDCs in the future.

However, that is a long-term vision. Further, the establishment of an international financial center in HCMC must meet stringent conditions, including infrastructure, national reputation, the Government’s capacity, and business confidence, noted Dr. Giang.

Still, speakers at the roundtable agreed that HCMC in particular and Vietnam in general own specific advantages. Dr. Huan observed that many startups prefer Singapore owing to the existing ecosystem and easier access to capital and technology markets, but Vietnam also boasts strength in terms of business costs, while the tax system does not lag far behind.

Nguyen The Minh, R&D director at Yuanta Vietnam, noted that each special economic zone or international financial center has its own appeal depending on the risk appetite of investors. Investing in Hong Kong, for example, requires acceptance of high risks, while in Singapore, tight control is the norm. Even investing in Shanghai is not easy due to specific hurdles there. “Vietnam boasts its own specific traits including flexibility and an easy-going mindset when compared to other developed markets,” he said.

Key aim: attracting foreign capital

Currently, discussions are underway for trial policies and mechanisms to turn HCMC into an international financial center. Experts involved in drafting such policies pointed to a favorable condition for HCMC, which is the city’s time zone different from those of all the 21 biggest financial centers in the world. This is the so-called “natural advantage” that can help HCMC attract foreign capital during the downtime at the other financial centers.

Regarding the stock market, the Yuanta Vietnam representative stressed the importance of mobilizing capital from foreign investors, especially institutional investors, as individual investors are overwhelming in Vietnam’s stock market, accounting for up to 90% of the transaction value compared to less than 50% in regional markets like Thailand or elsewhere.

There are many ways to stimulate foreign funds on bourse that have been discussed in the past, such as improving the quality of “commodities” being listed securities, lifting the foreign ownership cap in certain conditional business sectors, developing derivative products to help attract more capital on bourse and enhance liquidity, or delegating power to HCMC to equitize local enterprises.

The trial mechanisms will also be an important tool to lure capital, especially from areas that see the blend between new technologies and traditional businesses. “Apart from the risks pertaining to market, finance and business, a huge risk facing foreign investors and startups is the regulatory risk. They highly expect a regulatory sandbox. Mechanisms are not easy to be fleshed out, but regulations need to be specific to stimulate innovations,” said Tran Nhat Khanh, managing director of the investment fund Touchstone Partners.

Another issue is the stimulant capital or “bait capital” in the economy. Singapore has been successful in this respect as the government has contributed stimulant capital to private venture funds, enabling these funds to mobilize more capital to invest in Singaporean corporations. Khanh of Touchstone Partners asked whether HCMC should resort to this investment vehicle alongside tax and fee incentives to kickstart an investment ecosystem for the digital economy in Vietnam.

Seconding the point, Giang of ISC Paris Business School said that Vietnam needs to improve the legal corridor to facilitate private venture investments. Meanwhile, nationally-strategic projects should be able to access State-owned venture funds if they cannot secure private investment.

From the macro-economic perspective, a key challenge for a small-sized economy with high international exposure like Vietnam’s is how to control the free-moving capital flow while maintaining an independent monetary regime and a currency peg, according to Huan. This macro-economic hurdle will persist in the short term, while there is hardly any policy that can radically change the city’s current situation. However, new breakthough mechanisms will help the city attract more foreign capital and improve its growth quality. “Investors will find opportunities in new mechanisms,” asserted Khanh.