Ho Chi Minh City: Nguyen Nam owns an engineering services firm in Ho Chi Minh City that pays neither taxes nor any salaries. The flip side is it earns no revenue either.

Nam calls it a ‘zombie’, a familiar term in communist Vietnam, where the government’s priority of luring foreign multinationals and resuscitating its own inefficient firms has left small and medium-sized enterprises (SMEs) in dire straits.

Small enterprises are a vital link in Vietnam’s aspirations to become a global manufacturing dynamo as the country gears up to sign a slew of international trade deals, but many of these firms are uncompetitive, poorly managed and sunken by debt.

A record 67,800 companies were shut last year - 60,737 in 2013 and 54,277 in 2012 - in an astonishing run of closures.

“It’s really a waste,” said Nam, 34, who laid off staff as margins shrank. “It hurt, because it’s like...your own child and if you find it dying, you’ll feel very sad about that. That’s exactly what I felt.”

SMEs make up nine-tenths of local companies, but firms such as Nam’s, survive only in name, accounting for millions of dollars in unpaid loans and taxes.

It’s a headache for the state, which injected stimulus of $9 billion to rescue firms in 2009, with limited success. Prime Minister Nguyen Tan Dung has said Vietnam’s half-million companies are too few and too weak to compete, even at home.