What's behind Vietnam's corruption crackdown?

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HANOI (Reuters) - Vietnam's crackdown on high level corruption has led to the arrest of dozens of officials from state oil firm PetroVietnam and the banking sector.

As well as shedding light on graft, mismanagement and nepotism within state firms at a time privatisation is accelerating, the arrests show the ascendancy of a more conservative faction within the ruling Communist Party.

(Graphic - PetroVietnam versus PTT:

How many people are involved?

At least 51 have been arrested across PetroVietnam and the banking sector. Some have been tried and sentenced already. The most senior figure arrested is former PetroVietnam Chairman Dinh La Thang. He is the first former politburo member to face prosecution in decades. Neither he nor his lawyer was available for comment. Germany has accused Vietnam of kidnapping one PetroVietnam suspect, Trinh Xuan Thanh. More than 100 other officials are also under threat of prosecution or have been demoted or fired.

What is PetroVietnam?

PetroVietnam is a tangled enterprise of 15 direct units, 18 subsidiaries and 46 affiliates in which it owns smaller stakes. Hundreds of millions of dollars in losses have been racked up at units ranging from banks to construction firms and power plants to textile mills.

The scandals at PetroVietnam are connected to the banking sector through a deal in which the oil firm lost $35 million (£26.2 million) in an investment in Ocean Bank. The lender's former chief executive - a previous PetroVietnam chairman - was sentenced to death.

What does the crackdown mean politically?

It shows a concerted effort to rein in large-scale corruption through which some officials had secured massive personal wealth and tarnished the ruling party's image.

But it has also allowed the current Communist Party leadership to strengthen its hand under General Secretary Nguyen Phu Trong after winning out in a power struggle with former prime minister Nguyen Tan Dung last year.

Whether or not the arrests go even higher, Trong's supremacy is assured through a term that lasts until 2021 and the faction is better placed to maintain its dominance even beyond.

What divides the different groups in the ruling party?

Although the party presents a public image of unity, there are diverse views on everything from the pace and openness of reforms to Vietnam's delicate diplomatic balancing between China, the United States and other powers.

What best characterises the current leadership is conservatism in preserving the party's absolute authority in close alignment with the security establishment.

It marks a change of style from the leadership under Dung and his allies, some of whom emerged as personalities in their own right and showed signs of readiness for greater political openness.

Alongside the corruption arrests, Vietnam has also arrested more bloggers, activists and other critics this year than in any other since a 2011 crackdown on youth activists.

How popular is the corruption crackdown?

Few tears are shed in Vietnam over the arrests of former officials, but there is also scepticism over the real motives. The day-to-day corruption of low-level officials and police is still a factor of Vietnamese life.

What impact has this had on PetroVietnam?

PetroVietnam's net profit margin in 2016 was its lowest in at least seven years at just over 7 percent from over 15 percent in 2009. The company told Reuters the oil price was the biggest factor, but it has also said failed projects, wrongdoing by officials and the investigations themselves had an impact.

PetroVietnam's shares are not listed on a stock exchange, but some of its units have underperformed its Thai peer PTT since 2009.

What does this mean for reform and privatisation?

Although the crackdown points to the political strengthening of the party, the leadership has shown less sign of delaying economic reform than the previous administration.

Facing pressure because of its budget deficit, the government has accelerated plans to sell major stakes in the most attractive assets - brewery Sabeco and Vinamilk.

It is also selling stakes in three units of PetroVietnam.

Some economic and business analysts believe the fear among officials of being branded corrupt could further hold up bureaucratic decision making in state-run firms and ministries.

(Reporting by Matthew Tostevin and Mai Nguyen; Editing by Clarence Fernandez)

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