Vietnam's Communist Party General Secretary Nguyen Phu Trong in Hanoi, January 23, 2018. Photo: Reuters/Kham
Vietnam's Communist Party General Secretary Nguyen Phu Trong is due to step down early next year. Photo: Reuters

Back in 2016, after Nguyen Phu Trong retained his position as general secretary of the Vietnamese Communist Party but before his announcement of a new, major anti-corruption crackdown, he made a telling statement: “I’m not going to break the vase just to catch some mice.”

It wasn’t as cryptic as it first sounds. What he meant is that his anti-corruption campaign would stop short of any action that damaged the Communist Party itself. It was, at the same time, optimistic and pessimistic: an appeal for a clean slate and a prediction of future constraint. Yet since his anti-corruption purge began in 2016, it has brought down very senior executives of state-owned enterprises (SOEs), and some very well-connected government officials and politicians.

Of the former, this includes the likes of Ha Van Tham, former chairman of the Ocean Bank, a partially state-owned lender that was at the center of a large graft investigation, and formerly one of Vietnam’s most wealthiest tycoons, who was sentenced to life imprisonment last year. Of the latter, it includes Dinh La Thang, the party chief of Ho Chi Minh City, who became the first Politburo member to be fired in decades for his actions in his previous role as chairman of PetroVietnam, a major state-run enterprise. Now, another investigation into PetroVietnam is taking place, mainly over the half a billion dollars it lost in a nonsensical project in Venezuela.

Some of the reasons for Trong’s anti-corruption crackdown have been well documented and need no great explanation. The first, especially between 2016 and 2017, was aimed at purging executives and politicians aligned to Nguyen Tan Dung, the former prime minister who in 2016 unsuccessful challenged Trong for the position as party chief. Such a move was predictable; Dung rose through the party’s ranks, and then consolidated power once prime minister, through his connections with corrupt SOE executives and provincial party officials, the so-called “rent-seekers” who joined the party for enrichment, not ideology.

This later naturally morphed into a part of Trong’s morality campaign, designed to rid from the party those deemed to be insufficiently loyal or lacking in ideological credentials. For Trong – a life-long socialist theoretician and a traditionalist – the party had become too large and infiltrated by those who had little interest in party ideology, only profit.

However, it might be possible to say the anti-corruption campaign has today steered into another direction. What one eyes is economics, not politics, now as a reason for the purge. For starters, revisions made last year to Vietnam’s anti-corruption law for the first time expanded the anti-graft campaign to cover the private sector.

Yet with the state sector hardly forgotten, the problem the Communist Party faces is that Vietnam’s numerous SOEs (around 500 at last count, down from 12,000 in 1996, although the government wants to reduce it to 103 by 2020) are expensive to maintain, rarely profitable, and institutionally mismanaged. This matters, as the state’s finances are in a perilous position. The government has successfully reduced public debt levels and budget deficits in recent years; both could be become a considerable problem if left unchecked. But austerity measures come at great cost to the state’s ability to invest in infrastructure, necessary for SOE growth, and the salaries of state workers, which are now falling way behind those in the private sector.

The Communist Party really has three options. First, it can dash caution and increase spending on SOEs, which might not see a good return on investment in the future but would sure up the party’s support in the short term among executives and employees – and, importantly, forestall the private sector taking over the entire economy, a problem in itself for a Communist Party that rules over a half-free market. Or, second, it could simply call it quits and divest itself from all SOEs. The party could place them all up for sale, make billions of dollars in the process (a majority stake in state-run Saigon Beer was sold for US$4.8 billion in 2017) and then focus on managing economics from afar.

The third option, and the most sensible, if seen from the Communist Party’s perspective, is to divest as many incompetent and unprofitable SOEs as possible while retaining only the successful ones. Revealing was the creation last year of the State Capital Management Committee, which some have dubbed the “super-committee.” This body now oversees (what power it has isn’t exactly clear) some 19 of the largest SOEs, which combined have assets worth around $99 billion. Quite clearly, the party wants to have more oversight of the largest SOEs – and perhaps gain a clearer idea of their competency.

This comes with an inherent problem. Divestment from SOEs has stalled in recent years, chiefly, but not wholly, because private investors have taken a look at the firms and decided that they are too much of a risk. This was the case for the initial public offer4ing of Vinalines last year, which sold only 1% of the shares on offer. So it would be reasonable to assume that only the most profitable SOEs, the same ones the state wants to cling on to, are the likeliest to attract private investors.

A rebuttal, however, might be that if the party’s investigators can clean up the moderately healthy SOEs and tidy their books, then they might attract some investors in the end. Indeed, if PetroVietnam, say, can be cleansed of graft and incompetence, it stands a good chance of being highly profitable. Indeed, despite most of its foreign endeavors failing, according to reports, it still saw revenue of $4.8 billion in the first two months of this year, 8% higher than predicted.

More still, if the wasteful SOEs are cleaned up, even if they aren’t going to be sold off to private investors then they would, at least, given a better picture of other SOEs to investors.

What makes sense (and what Hanoi appears to be doing) is to sort out the most profitable and competent firms from those that are institutionally incompetent and corrupt, and stop the latter from leeching off the state’s restricted funds.

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