Aseonomics

Vietnam’s Great Merger: One Year After the Biggest Administrative Overhaul Since Reunification

tuan

·

On July 1, 2025, Vietnam woke up in a different country. Not politically — the Communist Party of Vietnam still ran everything — but cartographically. Overnight, 63 provinces and cities became 34. The entire district level of government — thousands of offices, courts, police stations, military branches — simply ceased to exist. Roughly 250,000 civil servants lost their jobs or were earmarked for removal. It was the most sweeping reorganisation of Vietnam’s administrative geography since the country reunified in 1976.

The man behind it, General Secretary To Lam, called it a “revolution in streamlining the apparatus of the political system.” The pitch was compelling: a leaner state, lower costs, less red tape, faster decisions. Vietnam would stop spending 70 percent of its budget on routine administrative expenses and redirect that money toward schools, hospitals, and infrastructure. The government projected savings of VND 190.5 trillion (US$7.62 billion) between 2026 and 2030.

Ten months on, the picture is more complicated than the pitch. The merger has produced genuine gains — fewer bureaucratic layers, some impressive early infrastructure coordination, and a political system that at least structurally looks more modern. But it has also generated regulatory confusion, displaced hundreds of thousands of public workers, erased local identities that mattered to people, and concentrated political power in ways that may not serve Vietnam well in the long run.

What actually happened

The scale of this thing is hard to overstate. Vietnam didn’t just merge a few provinces — it eliminated an entire tier of government. The country went from a three-tier system (province → district → commune) to a two-tier one (province → commune). Districts are gone. The number of communes was slashed by 60 to 70 percent. Only 11 of the original 63 provinces survived unchanged — mostly border provinces with defence considerations or cities that already met size thresholds.

The 23 newly formed provinces were stitched together from neighbours with shared geography, history, or economic logic. Ha Giang merged with Tuyen Quang. Lao Cai absorbed Yen Bai. Quang Nam folded into Da Nang. And the headline act: Ho Chi Minh City swallowed Binh Duong and Ba Ria-Vung Tau to create a 14-million-person megacity covering 6,772 square kilometres and contributing roughly 24 percent of national GDP.

The whole thing moved at extraordinary speed. As late as mid-February 2025, the Minister of Home Affairs was publicly denying that provincial mergers were planned. By April 12, the Central Committee had approved the blueprint. By June 12, the National Assembly passed it with 461 out of 465 votes in favour. By July 1, district-level government was officially over. The whole process, from denial to implementation, took about four and a half months.

The human cost

The numbers are stark. The restructuring is projected to eliminate around 250,000 positions — 130,000 officials, civil servants, and public employees, plus 120,000 part-time workers at the commune level. Vietnam had already spent VND 130 trillion (around US$5 billion) in 2025 alone on compensation for affected employees. The downsizing policies under Decree 154/2025 will run through the end of 2030.

For the people on the receiving end, the experience has been jarring. One provincial official told AFP he felt “shocked and sad” about having to leave after three decades in the job. “I may receive some billion dong in compensation, but I am not happy,” he said. “I don’t know what to do now, though I think I am still completely fit for work.”

As of March 2026, the Ministry of Interior was still working through the backlog — guiding localities on how to operate the two-tier model, reviewing personnel placements, and resolving the difficulties that keep surfacing as the new system beds in. The process is ongoing, not complete.

The HCM City mega-merger: showcase or stress test?

If the provincial merger has a flagship, it’s the new Ho Chi Minh City. The logic was seductive: combine HCMC’s financial and commercial muscle with Binh Duong’s industrial base and Ba Ria-Vung Tau’s deep-water ports and energy sector. The result would be a single administrative unit with nearly 100 kilometres of coastline, 66 industrial zones spanning 27,000 hectares, and ambitions to rival Bangkok or Jakarta as a Southeast Asian economic hub.

Some early results look promising. The merged city posted GRDP growth of 7.49 percent (excluding crude oil) in the first half of 2025. The commune-level units were consolidated from 441 down to 168. THACO Group broke ground on a 786-hectare mechanical industrial park in the former Binh Duong — a VND 75 trillion ($2.87 billion) bet projected to create 30,000 jobs. Plans for a 30-kilometre metro extension into the former Binh Duong are slated to start construction in 2027. The new Tay Ninh province, also born from a merger, has already attracted over 1,900 FDI projects worth more than US$23.5 billion.

But the friction is real. The merger’s regulatory overlap has frustrated investors. Soaring logistics costs, a shortage of clean industrial land, and outdated technology in some formerly rural areas are all dragging on the integration. Infrastructure between the three former provinces remains incomplete — connecting the Central Highlands portions of the new Lam Dong province to its coastal Binh Thuan sections, for instance, still has major gaps. Officials who approved your last project may no longer hold decision-making authority. The administrative apparatus is new; the relationships that make bureaucracies actually function are still being rebuilt.

The Ha Tay warning

Vietnam has tried this before, at smaller scale — and the precedent is not entirely reassuring. In 2008, Ha Tay province was merged into Hanoi. The result, according to Vietnam Briefing’s analysis, was years of “bureaucratic confusion and conflicting regulations” that “created approval bottlenecks that persisted for years”. Investors found themselves navigating contradictory requirements while officials sorted through overlapping jurisdictions.

The current merger is that problem multiplied by 23 — the number of newly formed provincial units. Until authorities finalise new provincial master plans, businesses face mixed signals on licensing requirements and land allocation procedures. What worked in one former province may not apply in its new partner. Pre-merger FDI competition between provinces often meant generous tax breaks and preferential land leases. Some of those incentives may now be reduced or withdrawn as the new, larger provinces rationalise their offerings.

The fiscal maths

The government’s fiscal case rests on a simple proposition: fewer bureaucrats means lower costs. The projected VND 190.5 trillion in savings over 2026–2030 comes mainly from cutting 120,500 part-time commune-level personnel, averaging about VND 38.1 trillion (US$1.52 billion) a year. On paper, this frees up budget for public services — the government has talked about redirecting money toward free education, healthcare, and public-sector salary reform.

But the upfront costs are enormous. The $5 billion already spent on compensation in 2025 alone eats into more than three years’ worth of the projected annual savings. Over 4,200 surplus government office buildings need to be repurposed — the plan is to convert them into schools, hospitals, and cultural facilities, but that requires additional investment, not just reallocation. And the savings projections assume the merger produces genuine efficiency gains rather than just shifting the same work to fewer people. That assumption will take years to validate.

Identity, erased

Administrative maps carry meaning beyond logistics. When you merge provinces, you also merge identities — and not everyone is happy about it.

Da Lat, the highland city that generations of Vietnamese know as the “city of flowers,” has been downgraded from a provincial capital to a ward. Sa Pa, the misty mountain town that anchors northern Vietnam’s tourism economy, has similarly been absorbed into a larger unit. The famous “Ha Giang Loop” — one of Southeast Asia’s most iconic motorcycle routes — technically now runs through Tuyen Quang province. Some of these changes have provoked heated debates online over post-merger provincial names and administrative capitals, leading to what ISEAS researcher Le Hong Hiep described as “short-term internal dissent among a segment of the provincial population in locations that are about to lose their names.”

The government was responsive enough to reverse some merger names after public pushback. But the deeper issue — that regional identity in Vietnam runs deep and cannot be dissolved by resolution — will take longer to navigate. For tourism, there are practical implications too: branding, signage, transport routes, and marketing materials all need updating. The question of whether “the Ha Giang Loop” keeps its name may sound trivial, but for a country that earned over $24 billion from tourism in 2024, this stuff matters commercially.

The political dimension

Administrative reform is never just administrative. Vietnam’s provincial merger has reshaped the Communist Party itself.

Fewer provinces means fewer officials promoted to national roles, a smaller Central Committee, and a more compact Politburo at the 14th National Party Congress in early 2026. As Chatham House’s Bill Hayton noted, the reduction in provinces effectively allowed To Lam to shape the composition of the Congress itself. The reform was framed as governance modernisation, and it genuinely is that — but it also consolidated power around its chief architect at a politically convenient moment.

There is a deeper concern here. Vietnam’s decade-long anti-corruption campaign has already made local officials highly risk-averse, fearing career-ending mistakes. With fewer promotion opportunities now available due to the mergers, those officials may become even more hesitant to act without direct orders from above. The slogan of the reform — “Locals decide, locals do, locals take responsibility” — promises decentralisation. But the structural incentives may push in the opposite direction: more caution, more deference to the centre, less initiative at the local level. Whether future leaders will have the vision or willingness to actually decentralise remains an open question.

What comes next

Vietnam’s merger is not finished — it’s in transition. The Ministry of Interior is still guiding localities through the two-tier model. Legal frameworks are still being harmonised. Businesses are still figuring out which office to call. The Provincial Competitiveness Index — the annual survey that used to rank all 63 provinces on governance quality — will need to be fundamentally redesigned for a 34-province landscape where the units themselves have changed.

The optimistic case is that Vietnam has done something genuinely bold. No other country in Southeast Asia has attempted governance reform at this speed or scale. If the merger succeeds in cutting red tape, coordinating infrastructure across formerly fragmented provinces, and redirecting budget from bureaucracy to public services, it will have bought Vietnam a significant structural advantage in the regional competition for investment and growth. The expanded HCMC alone — with its integrated ports, industrial zones, and financial centre — has the raw ingredients to compete with any city in ASEAN.

The cautious case is that speed is not the same as success. The Ha Tay-Hanoi merger took years to settle. This is 23 of those, happening simultaneously, with an entire layer of government removed at the same time. The savings are real but back-loaded; the costs are real and front-loaded. The political consolidation is efficient but potentially brittle. And the 250,000 people who lost their public-sector jobs did not lose them because they were bad at them — they lost them because the map changed.

Vietnam has bet that a smaller state can be a smarter state. The next few years will determine whether that bet pays off — or whether the country has simply traded one set of problems for another.

Sources

Comments

Leave a Reply

Your email address will not be published. Required fields are marked *