From my perspective after 15 years on the ground, Vietnam's banking sector is undergoing a period of remarkable expansion, making it a focal point for global financial institutions from Southeast Asia and beyond. Reflecting the Vietnamese market's potential, the updated figures from the State Bank of Vietnam (March 30, 2025) show that the country's current […]
Ever wondered why some of the biggest players in the world’s fastest growing markets are still state owned? For over two decades I’ve been on the ground in Vietnam, China and Malaysia helping investors and governments navigate the State Owned Enterprise (SOE) landscape.
Despite waves of privatisation, SOEs remain the dominant force driving GDP and employment. But they often struggle with inefficiency and political inertia. In China for example, China’s state owned enterprises are managed by the State-owned Assets Supervision and Administration Commission (SASAC) and play a significant economic role and are closely linked to national security and subject to international trade restrictions due to their connection to the military and defence sector.
The analysis of SOEs must be framed within the broader context of political economy as political regimes and economic policies fundamentally shape their reform, ownership structure and the balance between state control and market forces.
Understanding this paradox is the key to unlocking opportunities whether you are a policymaker driving reform or an investor seeking strategic entry. My work involves supporting government reforms and guiding private capital through the SOE ecosystem. It’s about turning legacy structures into launchpads for growth. A well managed SOE can provide the benefit of stimulating economic growth and serving national interests. In China, the landscape is shaped by Chinese companies, many of which are SOEs involved in both economic and defence sectors.
Key Takeaways
- Dual Mandate Dilemma: SOEs operate with a dual mandate: to generate profit and to serve national strategic interests and employment goals, creating inherent conflicts that can hinder performance.
- Gatekeepers to Strategic Sectors: In many emerging markets SOEs control critical sectors like energy, utilities, finance and transport making them unavoidable partners for foreign investors.
- Governance is the Core Challenge: Generally speaking the primary obstacle to SOE efficiency is weak corporate governance, characterised by political appointments, unclear performance metrics and lack of transparency.
- Reform is a Global Trend: There is a global push supported by institutions like the World Bank to reform SOEs by separating ownership from regulation, professionalising SOE boards, and increasing transparency to attract private capital.
- Divestment Creates Opportunity: For investors, SOE privatisation and divestment programs like Vietnam’s represent a big opportunity to acquire stakes in established high value assets, provided due diligence is thorough.
What are State Owned Enterprises and Why Do They Exist?
SOEs are not monolithic. They are complex entities that form the foundation of many national economies and understanding their structure is the first step for any strategist. An entity in this context refers to a legal and operational unit often owned or controlled by the government with a distinct legal personality.
Defining SOEs Across Frameworks
A state owned enterprise (SOE) is a business entity where the state has significant control through full, majority or strategic minority ownership. Unlike private firms, they have a hybrid purpose. They must balance profit with national interests such as maintaining employment levels, providing essential public services or securing control over strategic resources like energy and telecommunications. This dual mandate is their defining feature and their biggest challenge. Commercial enterprisesfocus solely on generating profits while an SOE operates within legal and regulatory frameworks that require it to fulfill both commercial and public policy objectives.
Where SOEs Matter Most
SOEs are most prevalent in capital intensive and strategic sectors: natural resources, utilities, banking, transport and telecoms. There is a distinction between a state enterprise, which is government owned or controlled, and private firms, which are owned by private individuals or groups. In many ASEAN, Latin American and MENA countries they are the largest companies and biggest employers. SOEs engage in commercial activities such as resource extraction, entering production-sharing contracts and operating in competitive markets.
The state typically owns shares, resources or operational licenses in these enterprises, giving it control over their activities. In addition to their core sectors, SOEs may also provide housing and other services especially as part of urban infrastructure and public sector support. Before diving into specific cases, it is helpful to look at examples of SOEs from different countries and sectors.
In Vietnam for example the economy features 19 major state-owned economic groups and corporations that are the cornerstones of the VNR500, the list of the country’s largest enterprises. These include companies significant in key economic sectors like energy (e.g., PetroVietnam), telecommunications (e.g., VNPT, Viettel), and banking (e.g., Vietcombank). Fannie Mae and Freddie Mac are examples of state-owned enterprises in the United States operating as government-sponsored entities in the mortgage finance sector.
SOEs in Public Finance
For governments SOEs are a double-edged sword. They can be a big source of revenue through dividends paid to the state budget and generate profits for the government, though they may also operate at a loss and require bailouts. But they also represent a big fiscal risk. Poor operational performance can lead to bailouts and their debts can become contingent liabilities for the sovereign impacting the nation’s credit rating. Creating a level playing field between SOEs and private businesses is important to ensure fair competition and market efficiency.
In some cases SOEs, have partial private ownership with shares sold to private investors or listed on the stock exchange. Listing on a stock exchange can introduce new governance requirements and transparency standards and affect how these enterprises are managed and how ownership is structured. This is often governed by a country's Securities Law, such as Vietnam's Securities Law 2019 and Decree 155/2020/ND-CP, which outline conditions for public offerings and foreign ownership ratios.
Types of State Owned Companies and State Ownership
State owned enterprises (SOEs) come in many forms reflecting different levels of government control and ownership structures. At one end of the spectrum are fully owned state enterprises where the government holds 100% ownership and exercises direct control over strategic decisions and operations. These entities are often found in sectors deemed vital to national interests such as natural resources, energy and defence.
Partially owned state enterprises are another common model where the government maintains a majority or significant minority stake, sometimes alongside private investors. This partial ownership can introduce market discipline while retaining state influence over key economic sectors. The ownership structure of SOEs can range from clear separation between government oversight and commercial management to more integrated arrangements, depending on the country and industry.
Across many countries, SOEs play a key role in the economy by providing essential public services and managing critical infrastructure. In addition to these core functions SOEs may also deliver other services such as housing support or municipal amenities as part of their broader mandate to support urban development and public welfare. For example oil companies and postal services are frequently state owned to ensure government control over resources and nationwide service delivery.
In some cases, SOEs operate as natural monopolies, managing utilities or transport networks that are impractical for private competition. The diversity of SOE models allows governments to tailor their approach to the needs of specific industries balancing public interest with commercial viability.
Economic Development: The Role of SOEs in National Growth
SOEs are at the heart of the economic development strategies of many countries, especially in the developing world. By controlling key economic sectors such as natural resources, energy and transportation governments can use SOEs to drive economic growth and deliver essential public services. In China for example, state owned enterprises are key to managing vast resources and driving development in industries from finance to technology, making Chinese companies global leaders in several strategic fields.
Effective corporate governance and sound management practices are critical to maximise the operational performance of SOEs. When managed well, these enterprises not only generate significant revenue for governments but also expand access to public services, reduce poverty and support broader economic development goals. In many countries SOEs are tasked with implementing government policies that promote inclusive growth and infrastructure development, so that even remote or underserved regions benefit from national progress.
Around the world, the ability of state owned enterprises to mobilise resources and deliver large scale projects makes them powerful agents of development. But their impact depends on the quality of their management and the alignment of their objectives with national priorities. As governments continue to reform and modernise their SOEs, these entities remain vital to achieving sustainable economic growth and improving the quality of life for citizens.
Governance Challenges and Reform Pressures
The biggest hurdle for SOE performance is almost always governance. Without the right structures, even the most strategic assets will underperform. Diversity and professionalisation on SOE boards are increasingly recognised as essential, with government led initiatives to improve board composition and gender representation.
Common Weaknesses Across Global SOEs
The pattern is consistent worldwide: political appointments to boards and management lead to decisions based on patronage, not performance. Key performance indicators (KPIs) are often vague, and there is a frequent conflict between the state’s role as owner and its role as regulator. Operations particularly procurement can be opaque creating significant corruption risks. This directly relates to the concept of clear separation between political influence and commercial operations.
Key Reform Trends 2020-2025
A global reform movement is underway to fix these issues. The core principle is the separation of the state’s ownership function from its regulatory function. This involves creating independent boards with professional directors and tying CEO compensation to clear performance contracts. Other reforms, such as corporate governance, SOE restructuring, shares listing and financial sector reforms, are also being implemented to improve efficiency and transparency.
Vietnam’s State Capital Investment Corporation (SCIC) is a good example of this model. It is the state’s professional shareholder responsible for restructuring and divestment of state capital. A recent article in Vietnam News (April 30, 2025) reported that the SCIC’s 2025 divestment list includes big enterprises like Saigon Beer-Alcohol-Beverage Corporation (Sabeco) and FPT Telecom, meaning valuable state assets will be transferred to private hands. This initiative aligns with Vietnam's Law on Management of State Capital at Enterprises (Law 69/2014/QH13), which governs state investment and capital utilization.
Local governments also play a key role in adopting and enforcing SOE governance policies, including initiatives to promote diversity and gender equality on boards at the municipal and provincial levels.
But progress can be slow. A recent analysis by The Shiv noted that Vietnam’s broader equitization of SOEs has stalled and the country will miss its 2025 targets. This shows the huge political and administrative challenges of such reforms.
Global support for SOE reform often includes investment operations by organisations like World Bank and IFC, which provide financing and project interventions to support these changes in sectors like energy and finance.
Law and Regulation of State Owned Enterprises
The legal and regulatory framework for state owned enterprises (SOEs) is key to their operation and oversight. In most countries, dedicated laws and regulations govern the establishment, management and accountability of SOEs to serve both public and commercial objectives. For example, in China, the State Owned Assets Supervision and Administration Commission (SASAC) plays a central role in supervising state owned assets and guiding the management of SOEs to align with national priorities, as outlined in China's Company Law.
Elsewhere, government agencies are responsible for monitoring SOE performance, enforcing compliance with legal standards, and safeguarding the interests of all shareholders including the state. Effective regulation is essential to prevent conflicts of interest, reduce corruption risks and ensure SOEs operate on a level playing field with private companies. International standards such as those developed by the OECD provide valuable frameworks to enhance transparency, corporate governance and accountability in SOEs.
Laws may also stipulate requirements for financial reporting, board composition and stakeholder engagement to ensure SOEs are managed transparently and in the public interest. By adhering to robust legal and regulatory frameworks, governments can have more efficient, competitive and accountable state owned enterprises that contribute positively to the overall economy.
Business and Operations Reforms in SOEs
Business and operations reforms are crucial to turn state owned enterprises into efficient, competitive and financially sustainable organisations. In many countries, SOEs have struggled with inefficient management, lack of transparency and limited responsiveness to market demands. To address these challenges, governments are increasingly implementing reforms that align SOE operations with private sector standards and global best practices.
Key reforms include restructuring organisational hierarchies, introducing modern management techniques and upgrading financial management and accounting systems. These changes help SOEs operate more like private companies, reduce their dependence on government subsidies and improve their ability to compete in the market. For example, the World Bank has supported initiatives in Indonesia and other countries to strengthen the financial management of state owned enterprises resulting in improved operational performance and greater accountability.
By fostering a culture of innovation and customer focus, business and operations reforms enable SOEs to better serve citizens and adapt to changing economic conditions. As governments around the world prioritise these reforms state owned enterprises are increasingly positioned to drive economic growth, deliver public services and contribute to national development objectives.
Why SOEs Matter to Global Investors and Development Agencies
For foreign investors, SOEs are not just economic entities; they are gatekeepers to some of the most attractive sectors in emerging markets. Strategic insight is your key to unlocking that gate.
SOEs as Partners and Competitors
If you want to bid on a major infrastructure project, enter a protected banking sector or build a national telecom network, you will almost certainly be dealing with an SOE as a partner, a competitor or a regulator. This makes understanding their internal dynamics a critical part of risk management.
Monitoring trade activities and ensuring compliance with international trade regulations is essential when engaging with SOEs given the complexities of cross border commerce and potential trade restrictions. Navigating SOE driven tenders requires a risk proof strategy that accounts for political influence and non-commercial objectives.
FDI and the SOE Interface
In economies like Vietnam, Indonesia and India partnering with SOEs is a primary pathway for FDI. These partnerships can provide market access, local knowledge and political cover. But they also come with risks. As a consultant, I always advise clients to build in stringent protections for intellectual property, ensure contracts are iron clad, and clarify international arbitration mechanisms before signing any deal. This aligns with legal considerations for private businesses engaging with SOEs.
Preparing SOEs for Capital Market Discipline
The ultimate goal of many SOE reforms is to prepare these giants for the discipline of the capital markets. This is a game changer.
Transparency, Audit, and Reporting
Before any SOE can attract serious international capital it must get its house in order. This means adopting International Financial Reporting Standards (IFRS), conducting clean audits and full disclosure of related party transactions. Stock exchanges play a key role here, as their listing requirements force SOEs to elevate their governance to public company standards. This is explicitly supported by Vietnam's Decree 155/2020/ND-CP related to the Securities Law.
What Global Investors Expect
When I advise funds looking at SOE IPOs or divestments, their checklist is clear. They want to see a clean audit trail, a sustainable debt structure and a professional board capable of onboarding foreign investors. Crucially, they need to see clear exit pathways and a reliable legal framework for resolving disputes.
Public Fiscal Management Reforms
Public fiscal management reforms are key to unlocking the full potential of state owned enterprises (SOEs) and ensuring their positive impact on economic growth and development. In many countries, SOEs are major contributors to government revenue, but their operational performance can also pose significant fiscal risks if not properly managed. SOEs are also often called upon to respond to natural disasters, restore essential services and channel resources to affected populations. To address these challenges governments are increasingly implementing reforms aimed at improving efficiency, transparency and financial sustainability.
Key measures include restructuring underperforming SOEs, introducing international standards of accounting and auditing and strengthening corporate governance practices. These reforms ensure SOEs are managed according to best practices with clear accountability and a focus on delivering value to both government and the public. In the developing world, these reforms are especially important as SOEs often play a central role in providing public services and supporting economic development.
China is a good example where the government has promoted mixed ownership structures and encouraged private investment in state owned companies to enhance competitiveness and operational performance. By doing the same, governments can help SOEs operate more efficiently, deliver better public services and contribute to sustainable economic development. Ultimately effective public fiscal management reforms enable SOEs to become engines of growth rather than sources of fiscal strain in economies around the world.
Competition and Regulation in SOE Sectors
Ensuring robust competition and effective regulation in sectors dominated by state owned enterprises is critical for a healthy market economy. In many industries, SOEs have historically operated as monopolies or oligopolies which can stifle innovation and limit opportunities for private firms. To address these issues, governments are introducing regulatory reforms to promote competition, transparency and accountability within SOE sectors.
These reforms often involve setting up independent regulatory bodies, competition laws and encouraging private sector entry in industries dominated by state owned enterprises. For example, China has taken significant steps to reform its state owned enterprise sector by establishing new regulatory frameworks that promote competition and support private sector entry. This creates a level playing field where both SOEs and private companies can operate under fair and transparent conditions.
By promoting competition and regulation, governments can drive efficiency, innovation and ensure SOEs deliver value to consumers and the broader economy. This is key to building dynamic industries that contribute to long term economic growth and development.
Global Reform Models and Execution Pathways
SOE reform is not a guessing game. There are proven models and toolkits from global institutions but execution requires local expertise. For example, in China, the State Council plays a central role in overseeing and implementing SOE reforms, setting up business groups and managing policy changes as part of broader economic initiatives.
World Bank, IMF and OECD Toolkits
Institutions like the World Bank have long advocated SOE reform. A May 2025 World Bank press release stated “maintaining momentum for institutional reforms,” including in the SOE sector, is key for Vietnam to become a high-income country. These reforms focus on clear ownership policies, level playing field with private competitors and transparency through performance agreements and public disclosures. This is reinforced by Vietnam's Law on State Capital Management at Enterprises (2014) which aims to improve the efficiency and transparency of state capital utilization.
As an FDI specialist, I often take these global best practices and adapt them to the local context. We do due diligence on SOE assets in the divestment pipeline, structure transactions for partial sales or joint ventures, and provide cross-border advice to make these complex reforms a reality.
SOEs Are Political But Reform Must Be Economic
State-Owned Enterprises will always have a political dimension. Governments rely on them to deliver policy. But to drive growth, they must be managed like private companies. This is the balance that successful emerging economies strike.
Reforming a nation’s SOEs is a big task but it’s not impossible. With structured capital, modern governance, and a clear growth strategy, these legacy giants can become engines of future prosperity. Partner with us to balance public interest with global investor expectations—because when it comes to securing your next breakthrough the only way is forward.
Policy Implications for Policymakers and Market Strategists
The evolving role of state owned enterprises in economic development presents both opportunities and challenges for policymakers and market strategists. For governments, the key task is to get the balance right between government control and SOEs operating efficiently and competitively. This means implementing reforms that increase transparency, accountability and competition while ensuring SOEs remain effective tools for achieving national development goals.
For market strategists, the prominence of state owned enterprises in emerging markets like China offers valuable insights into government priorities and policy direction. SOEs can be attractive investment opportunities especially in sectors aligned to national growth strategies. But investing in SOEs also comes with risks, especially in environments where regulatory frameworks are evolving or where government intervention can change the rules of the game.
Ultimately, both policymakers and investors must navigate the complexities of state ownership, government control and market dynamics. By understanding the strategic role of SOEs and the implications of ongoing reforms stakeholders can better position themselves to take advantage of opportunities and manage risks in industries dominated by state owned enterprises.
