It is necessary to create a balance in the incentive policy for foreign and domestic investment, avoiding heavy reliance on FDI, he added. Creating more incentives for foreign investors than domestic investors will result in an unbalanced growth because nothing is as good as promoting domestic strength.

Indeed, the imbalance can be clearly seen in the real estate field when the nicest positions belong to foreign investors. Meanwhile, colossal high-rise buildings that have made great contributions to urbanisation are absolutely not developed by all foreign invested enterprises.

According to the analysis of the planning and investment ministry's central economics management institute, some 70 percent of FDI projects in 2008 were loan capital, large part of which was domestic loans.

In 2008, the country had 33 projects of apartments, urban areas with total investment of nearly $10 billion of which the registered ownership capital was only $2.2 billion, or 22 percent and the remainder had to be raised from loans.

When the world's credit-finance system is still dizzy because of the crisis, investors would surely find it hard to borrow loans. That means risks from FDI projects would be also very high.

In 2008, a foreign investor had promised that he would spend $11 billion investing into Phu Yen province, however, later he withdrew his project because of failing to raise sufficient capital. Many foreign investors have withdrawn projects from Vietnam because of similar reasons.

Meanwhile, with modest capital amount, domestic investors are still able to develop projects well. However, they have not yet won confidence of local provinces in licensing and leasing land.

Being a leading scholar on Southeast Asia's growth and the person who has deeply studied the financial crisis in Southeast Asia in 1997- 1998, Professor Jomo Kwame Sundaram, assistant to the UN's general secretary on economic development, had a somewhat different view on this issue. He said that "benefits from FDI attractions are undeniable such as technology transfer, knowledge and skill transfer, market accessibility, and others. Vietnam has no other choice but to use FDI to obtain its development targets."

However, he also warned that "it is the fact that many foreign investors in Vietnam make use of cheap-cost labour to produce products. Nevertheless, they fail to make contributions to improving capacity and competitive capacity of Vietnam."

Sharing the same point of view with Professor James Riedel, Professor Jomo Kwame Sundaram noted that "Vietnam should create balance in its incentive policy between foreign and domestic investors."

According to Tran Anh Duc, general director of Vilaf Hong Duc Law Co, the recent reduction of FDI showed that Vietnam would have to rely more on domestic investors.

In order to do this, the government should remove unnecessary investment approval procedures and allow businesses to determine their own projects. For example, investment certificates should be abolished for domestic projects.

Thoi Bao Kinh Te Vietnam - August 24, 2009