Vietnam reestablished full diplomatic ties with China in 1991, and the U.S. lifted its trade embargo on Vietnam in 1994, which was followed by the establishment of full diplomatic ties in 1995. .
3. Reforms and Growth.
After 10 years of failed economic planning, the 6th National Congress of the Vietnamese Communist Party started implementing an economic restructuring reform also known as "Doi Moi". Despite state price controls, there was a market inflation rate of more than 700 per cent per year. Total exports at about US$500 million were less than half the total value of imports (US$1,221 million) and per capita trade levels were very low by East Asian standards. Government revenues were low, the fiscal deficit was large and persistent, and some areas were on the verge of famine. .
Essentially, the reform included plans which were directed at developing a multi-sectoral market; reforming the legal, banking, fiscal and monetary systems; controlling inflation and the national budgets; and creating a conducive environment to attract investments, especially foreign direct investment. Growth in total industrial output has exceeded 10% per year since 1991. Hence, industry and construction together constitute around 30% in 1995, up from 23% in 1990. Similarly, the services sector has grown to 43% of total GDP, up from 39% in 1990. .
The GDP growth rate reached a record high of 9.5 in 1995. The obvious and immediate engine of growth was the expansion in exports. Between 1989 and 1997 the dollar value of Vietnamese exports rose seven-fold. This high export growth rate had a pervasive influence. It generated fast income growth. In the agricultural sector, it sustained a growth rate in excess of the expansion of the domestic food market. Rapidly increasing export earnings, supplemented by capital inflows, generated the foreign exchange needed to fund imports, including capital goods. Entry into new branches of trade stimulated technical transfer and innovation.