Vietnam has emerged recently as one of the fastest growing economies and widely be perceived as the next transition tiger. State capacity, which is believed to be pivotal to the success of the NIC, is under scrutiny in Vietnam. This paper attempts to examine state capacity of Vietnam in the institutional, political, administrative and technical aspects employing examples in urban and housing development. This paper argues that despite the permeation of state machinery into every levels of society and creates an outlook of a strong socialist party state, state capacity in Vietnam is in fact rather weak. Although the country is striving hard in strengthen its capacity in various areas, such reforms are either yet to take root or being dragged by legacy of the old regime. The unique state-society relationship in Vietnam also shapes the trajectories of adaptation of state capacity in the course of rapidly changing economic and social environment.