Capitalism, Chinese Style

China today has all the sober trappings of modern capitalism: contracts, corporations, and institutions enshrined in law. Yet guanxi, or relationships with kin or associates who are tapped for favors with the understanding of reciprocity, continue to play a large role in the business dealings of everyone from the humble dumpling vendor to the iPhone-wielding Shanghai executive. The most useful guanxi are with Communist Party officials, facilitating a “state-capital symbiosis” that has become a unique feature of Chinese capitalism, writes political scientist Christopher A. McNally of Chaminade University in Honolulu.

Guanxi are handy beyond business. The practice has its roots in Confucian teachings that emphasize familial relationships, respect for elders, and social status. The spheres of trust these teachings elaborate became a fulcrum of Chinese society and the basis for guanxi. An individual may purchase a nice gift on the anniversary of an influential person in his or her guanxi network with the expectation that the recipient will provide useful help in the future. Under Mao Zedong, the Communist Party tried to stamp out guanxi, but individuals still drew on these special connections to survive. As the Chinese economy began to open up following market reforms in 1978, guanxi provided “entrepreneurs with channels to navigate government restrictions and ambiguous institutions.”

Guanxi are instrumental in allowing business owners to gain access to credit, win government grants, procure licenses, cut through red tape, and influence policy. They allow the Communist Party to maintain a good deal of control over the private sector. In a 2010 survey, 93 percent of Chinese proprietors said guanxi were integral to success. As one real estate developer told McNally, “If you have guanxi, you will have access to capital. However, if an entrepreneur has capital but no guanxi, the business cannot survive.” Writing in The Wall Street Journal in 2010, policy researcher Ryan Streeter offered an apt comparison: “Generally, enterprising individuals in India believe they succeed in spite of the state, while in China they think they succeed through their connections to it.”

Will guanxi continue to reign in their current form? In Taiwan, guanxi have come to shape the way industry on the island is organized, with groups of collaborative businesses developing out of guanxi connections. But, McNally says, guanxi capitalism may also “gradually give way to rational-legal principles, thus eroding any distinctly Chinese cultural references.”

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The Source: "China's Changing Guanxi Capitalism: Private Entrepreneurs Between Leninist Control and Relentless Accumulation" by Christopher A. McNally, in Business and Politics, August 2011. 

Photo courtesy of Flickr/Sam Sherratt