Session 43: Guanxi and Capitalism: A Comparative Analysis of Favor-Exchange Practices in Asian Economies

Organizer: Carolyn L. Hsu, Colgate University

Chair: Josephine Smart, University of Calgary

Discussant: Mayfair Yang, University of California, Santa Barbara

What effect does the Chinese practice of guanxi (also known as networks, connections, or favor-exchange) have on marketization? Some scholars see guanxi in opposition to rational capitalist practices (Fukuyama 1995; Guthrie 1998, 1999). Others argue that guanxi practice has facilitated the transition to capitalism in China (in contrast to, say, Russia), by providing informal institutions of trust, civility, and organization where formal institutions were inadequate (Smart 1993; Lo and Otis 2003). At heart, this debate is not only about the nature of guanxi practice, but also about the nature of capitalism.

This panel sheds new light on these issues by expanding the scope of inquiry beyond the borders of the PRC. It includes Tong Chee Kiong’s study of Chinese firms in Southeast Asia, and the role of guanxi practice in their business success, as well as Alan Smart’s paper on Hong Kong investors in South China. We also open up the question whether guanxi is a uniquely Chinese practice at all, by including Brian Moeran’s research on the Japanese advertising industry, which examines the role of tsukiai (connections) and jinmyaku (networks). Last, we ask whether guanxi practice operated the same way even within the PRC, by offering Carolyn Hsu’s paper on the northern Chinese city of Harbin, where guanxi practice was not used to develop family-based firms, but to keep family members from working in the same business. Mayfair Yang will act as discussant.

What Chinese Guanxi Can Teach Us about Capitalism: The Case of Harbin’s Businesses

Carolyn L. Hsu, Colgate University

This paper uses ethnographic research conducted in the northern city of Harbin to examine three different theories on the relationship between guanxi practice and marketization in China. The first theory argues that guanxi practice impedes the development of a successful capitalist economy by throwing up obstacles to efficient and rational economic flows. However, Harbin entrepreneurs used guanxi practice to start up dynamic small businesses. The second school of thought asserts that guanxi practice and other characteristics of Chinese culture lead to the development of an alternative form of capitalism—"Confucian capitalism"—which may be as viable as Western, rationalized capitalism. One of the primary characteristics of "Confucian capitalism" is the centrality of family-based businesses, yet the number of family-based businesses was remarkably low in Harbin. Instead, Harbiners used guanxi practice to keep family members out of their firms.

The third perspective contends that the practice of guanxi has facilitated the transition to capitalism in China (in contrast to, say, Russia), by providing informal institutions of trust, civility, and organization when formal institutions were not yet adequately formed. Although this view is more promising, at this point it raises more questions than it answers—questions not only about market socialism in China, but about the assumptions about human behavior which underlie the economic institutions of Western capitalism. I argue that guanxi practice reveals that a successful market economy does not require legal contracts or the Rule of Law, but can be based on friendship ties, emotional considerations, gifts and favors.

Rethinking Chinese Business Networks in Southeast Asia: Institutional Structures and Organizing Principles in Chinese Business Firms

Tong Chee Kiong, National University of Singapore

Chinese business enterprises did not arouse much interest in organizational studies until the extraordinary rates of growth of the so-called East Asian economies. Early efforts to make sense of this economic success have emphasized cultural factors, especially the neo-Confucian perspective, focusing on the role of Chinese ideas such as guanxi, xingyong, and ganqing. Critics have suggested that such an approach promotes an over-socialized conception of economic action. One of the outcomes of the financial crisis that struck in the late 1990s was the resurgence of the market perspective in explaining the economic woes of Southeast Asian economies. Clearly, however, there is something unique about the economic structures and organization of Chinese business enterprises that differentiates them from merely following "market principles."

This paper, based on extensive field research of business firms in Southeast Asia, explores the organizing principles and institutional structures of Chinese family firms. It reexamines the role of guanxi in accounting for Chinese economic success. Are there distinctive ways in which Chinese business firms are organized? What are the similarities/differences among Chinese firms in various Southeast and East Asian countries? The paper argues that guanxi is a dynamic process, not a static concept, changing and adapting to new economic realities, especially after the financial crisis that hit Southeast Asia in 1997.

Guanxi in Transformation: Decline, Domestication, and Transnational Technical Cooperation

Alan Smart, University of Calgary

The study of guanxi has in recent years been subjected to considerable critique by those who see it as involving flawed culturalist explanations. From this perspective, an emphasis on guanxi in accounts of Chinese economies tends to exoticize those societies by asserting that there is something culturally distinct about Chinese populations that determines how they engage in business. In a context where crony capitalism is widely cited as a factor contributing to the Asian financial crises from 1997, an emphasis on such distinctiveness is also seen as politically problematic. While applicable in some cases, such criticisms are less appropriate when guanxi is seen as a tool or mechanism rather than a cause. The use of social connections to get things done is neither unique to China nor something that is culturally determined, but rather is a response in particular conditions that depends on skill in performance to be effective. In this paper, I draw on research on Hong Kong investment in South China to examine some of the ways in which the use of guanxi is being transformed in contemporary China. While in some contexts, it is in relative decline, in other areas it has been domesticated or tamed as had previously occurred in Hong Kong and Taiwan. In the rapidly expanding high-tech sectors, guanxi based on kin and locality ties is being replaced by an emphasis on educational and associational connections.

Making Connections: The Japanese Advertising Industry

Brian Moeran, Dept of Intercultural Communications and Management, Frederiksburg, Denmark

The study of networks is extremely broad and varied—ranging from informal interpersonal relations of the kind studied by anthropologists to various kinds of institutional networks and inter-organizational alliance structures studied by organizational and economic sociologists. Indeed, the expansive reach of networks and the sheer variety of connections in operation at any one time makes them extremely difficult to talk about coherently.

The word "network" is used in two senses in anthropological and sociological literature. On the one hand, it refers to informal social systems that operate alongside the more formal institutional structures in which people generally find themselves. On the other, it is made to apply to a formalized methodology, as in "network analysis." It is for this reason, perhaps, that we should distinguish—as do the Japanese themselves—between connections (which are the processes of networking, or what people practice) and networks (which are how they analyze what they practice).

This paper looks at connections (tsukiai) and networks (jinmyaku) in the context of the Japanese advertising industry. Connections and networks of one kind or another permit agency-client relations to be formed and then frame social interaction between the two parties, as well as between different members of an account team. But how do people form and maintain connections? What social mechanisms and moral expectations are used to sustain relations based on trust? And how do these contribute to or hinder the fieldworker in a large advertising agency?

But, if connections contribute positively towards building bridges between organizations, their downside is that they are unpredictable. In the world of Japanese advertising, as in business worlds in general, therefore, a lot of time and energy is spent on strengthening potentially fragile one-on-one connections to enable organizational networks to come into existence and prosper. But what exactly is the link between people and organizations? How does a personal relationship between individuals get transformed into a structural alliance between organizations? This paper will seek to answer such questions in the light of extant readings on the functions and practices of networking in the Asian region.