Guanxi, How China Works by Yanjie Bian;

Author:Yanjie Bian; [Bian, Yanjie]
Language: eng
Format: epub
Publisher: John Wiley & Sons, Inc.
Published: 2019-02-04T00:00:00+00:00

The Institutional Substitute Perspective

Xin and Pearce (1996) provide a plausible explanation of why China's private entrepreneurs value guanxi connections more than state and collective managers. These authors point to the weak and largely uncertain institutional protection that the state institution provides to the emerging private economy. In-depth interviews with private-company executives offer several insights. First is an underdeveloped legal framework that makes private-company executives more dependent on guanxi than executives in state-owned or collective-hybrid companies. In a fully developed market economy, a private company can formally obtain company registration, secure bank loans, and collect profits from business operations, but in an anti-privatization political culture in the 1980s and early 1990s, access to these “market” rights and resources was not readily available to Chinese private entrepreneurs. “A weak rule of law is problematic for all who do business in China, but such unreliability would prove particularly burdensome for newer, smaller private companies” (Xin and Pearce 1996: 1642). In a sample of 258 company executives, private-company executives (N = 72) perceived guanxi connections to be much more “important” than state (N = 120) and collective (N = 66) executives.

Another important insight is about the protective role guanxi ties to government officials play in helping private entrepreneurs to face fundamental threats, such as expropriation and extortion (Redding 1990). These threats are an everyday phenomenon of the Chinese private economy even today: Small commodity retailers, grocery sellers, and other mobile traders run around the city streets to get away from the harsh “market managers” sent by the city government; small and medium shops, stores, and factories must deal with local police, public health officials, and tax officers who can stop or even terminate any business for real or fictional reasons any time; and large and even giant companies have to be mindful of the predatory behaviors of powerful officials and especially their ruthless and money-thirsty children. No wonder private-company executives in Xin and Pearce's sample feel more strongly than state- and collective-company executives that “connection defends against threats” and that they “trust in connection” more than formal institutional arrangements (Xin and Pearce 1996: table 2).

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