The Role of Guanxi in Chinese Economic Transition Firm Networking & Market Autonomy

Chelsea Dye

Date of Award

2011

Document Type

Thesis

Degree Name

Bachelors

Department

Social Sciences

First Advisor

Hicks, Barbara

Keywords

Social Capital, Economic Development, Guanxi

Area of Concentration

International and Area Studies

Abstract

This thesis examines the role of guanxi in China's economic transformation. Guanxi is an institutionalized form of social capital in China that has evolved since the time of Confucius. Social capital is lauded as a resource that may help economic actors overcome the uncertainties of economic transition through the use of social networks to share information. When examining the history of China's economic transition since 1979, it is evident that guanxi has had many roles in facilitating cooperation and information sharing among Chinese firms. Yet as the transition progressed, the use of social networks to surmount barriers to entry and to operate in the marketplace became burdensome to new small and medium-sized firms. The structure of the economic reforms made private firms dependent on vertical relationships with the state to operate in the market. While state-owned firms enjoyed at-hand relationships with the state, private firms have to cultivate these vertical relationships at an increased cost to enter the market. The increased costs of guanxi to private firms makes small and medium-sized firms reliant on the state to do business. The reliance of firms on the state means that there is little hope for a private entrepreneurial class to form in China separate from the state. This reliance coupled with a weak regulatory system and only nascent rule of law point to a market economy dependent on the state. Only by creating efficient institutions will the private sector be able to be autonomous from the state.

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