Power and economic transition
State-owned companies dominate some 60% of bank lending and account for more than half of the country's bad debt.
After about three decades, the country is still transitioning from central planning to a "socialist market economy" with the Communist Party remaining in charge.
This isn't China, but Vietnam. And the country that was viewed as the "next China" due to its stable transition has started to generate concerns about a looming debt crisis.
For Vietnam, the dominance of state-owned enterprises remains a problem nearly three decades after the 1986 market-oriented reforms known as "doi moi".
It shares a problem with China in that state-owned enterprises are a source of bad debt that can sink the banking system. Vietnam created "bad banks" known as asset management companies to take the bad debts off the books of the state-owned banks earlier this year.
This is similar to what China did in 1999 when it created four such companies to try to clean the balance sheets of its four big state-owned banks prior to opening up the sector with World Trade Organization (WTO) entry in 2001.
But, the problem with bad debt is not just the stock, but the flow. In other words, the continued accumulation of debts from inefficient state-owned enterprises is the issue.
China in the mid-1990s took a huge step in getting rid of many of its state-owned firms. The number of large state-owned enterprises dropped from about 10 million to less than 300,000 by the end of the decade.
It still has a large state-owned sector, but a notable attempt was made to try to cut the flow of bad debt by increasing the efficiency of the remaining state-backed companies.
This was done by partially privatising or selling shares in even the largest state-owned firms, including banks.
Of course, China created other problems for itself when it used the banking system to largely finance its large fiscal stimulus to boost the economy during the 2008 global financial crisis.
Vietnam has pledged to reform state-owned enterprises, but how much progress there has been is another matter. For instance, the World Bank found that against a target of selling shares in 93 state-owned firms last year, sales have occurred in only 12.
The question is why have reforms progressed so slowly.
As I mentioned earlier, Vietnam was viewed as the next China given its similar slow dismantling of the command economy.
It is also a sizeable country, not quite China's 1.3 billion but nevertheless it has nearly 90 million people, which ranks it as the 13th biggest country in the world, just two shy of the 11 countries with 100 million-plus populations.
And like China, Vietnam decided not to go down the "shock therapy" route. This is what the former Soviet Union did when it transitioned from a centrally planned economy during the early 1990s.
Instead, these Asian nations gradually introduced market forces, including allowing non-state firms to operate, so that the Communist governments could slowly reform the state-owned sector.
Looking at the decade-long recession that Russia and the central/eastern European nations experienced after their rapid transition, it probably isn't surprising that China and Vietnam looked like they were doing the smart thing. However, there is an important impediment to both of their reforms.
It actually comes back to the argument that, for a country to undertake a rapid transition to become a market economy, it must remove the inefficient hand of the state.
That would also prevent the build-up of vested interests and the creation of new power bases arising from those who benefit most from the reforms. They can forestall further reform.
Of course, there were numerous problems with the transition of Russia and others, including the unrealistic expectation that a private economy could just take hold if the old state one was dismantled.
For China, it undertook what has been called an 'easy-to-hard' reform sequence. What it means is that politically easier reforms like incentivising agricultural output were done first, while leaving the harder reforms of the state-owned sector for later.
And those new power bases have begun to make it more difficult to implement further reform.
For Vietnam, its reforms seem to be mired in the inability of those who run the state-owned firms to allow them to become at least partly, if not wholly, privatised.
In other words, those who benefitted from the marketisation of the economy are now hanging on to their inefficient firms, which are a drag on the banking system.
Vietnam's government debt is around 50% of GDP, and crucially, some 37% is externally owed.
Plus, when the debts of state-owned enterprises are added in, the debt doubles to a staggering 100%. These are the sorts of statistics that would raise warning bells about a potential crisis.
To avert it would require cutting off the flow from state-owned firms, along with pushing ahead with some degree of privatisation.
To achieve it requires dealing with vested interests.
The lesson for countries tackling reforms is that power as well as efficiency must be considered to be effective. For Vietnam, it may be a hard lesson to learn.