Recently a number of scholars have examined guanxi (connections/social relationships) and its role in the structure of Chinese society as the economic transition progresses. While many China scholars view guanxi as a deep-seated cultural fact of Chinese society, I view guanxi as an institutionally defined system – i.e. a system that depends on the institutional structure of society rather than on culture – that is changing in stride with the institutional changes of the reform era. Some scholars have argued that social networks and the use of these networks to exchange gifts and favours (guanxi xue or guanxi practice) are increasing in imnnrtanre. in China's transition.
1. See Yang, Mayfair, Gifts, Favors, and Banquets: The Art of Social Relationships in China (Ithaca, NY: Cornell University Press, 1994); Yan, Yunxiang, The Flow of Gifts: Reciprocity and Social Networks in a Chinese Village (Palo Alto, CA: Stanford University Press, 1996); Kipnis, Andrew, Producing Guanxi: Sentiment, Self, and Subculture in a North China Village (Durham, NC: Duke University Press, 1997); Bian, Yanjie, “Guanxi and the allocation of urban jobs in China,” The China Quarterly, No. 140 (12 1994), pp. 971–999; Gold, Thomas, “After comradeship: personal relations in China since the Cultural Revolution,” The China Quarterly, No. 104 (12 1985) p. 657–675; Whyte, Martin King and Parish, William L., Urban Life in Contemporary China (Chicago: University of Chicago Press, 1984); Walder, Andrew G., Communist Neo-Traditionalism: Work and Authority in Chinese Industry (Berkeley, CA: University of California Press, 1986).
2. Bian, , “Guanxi and the allocation of urban jobs in China”; Yang, , Gifts, Favors, and Banquets. Throughout her work, Yang refers to guanxi and guanxi xue; she also refers to the latter term as the “art of guanxi.” To emphasize to the reader that the latter refers to a specific practice that employs guanxi (social networks) to exchange favours and gifts (hence “the gift economy” as it is also called by both Yang, and Yan, (The Flow of Gifts)), I refer to guanxi xue throughout this paper as “guanxi practice,” which I have found to be less cumbersome and more direct than the “art of guanxi.” Thus, whenever I use the term “guanxi practice,” I am referring to the specific institution of guanxi xue/the gift economy, which Yang studied.
3. My use of the term “state administrative hierarchy” (referred to elsewhere as “budgetary rank”) is the “nested hierarchy” of state administrative offices that have direct jurisdiction over firms in China's industrial economy (see Walder, Andrew, “Property rights and stratification in socialist redistrubitive economies,” American Sociological Review, No. 57 (1992), p. 524–539). This structure was crucial to firm administration in the command economy and it plays a role in how firms experience the reforms of China's economic transition. The most important aspect of this hierarchy is a firm's distance from the central government: firms under the jurisdiction of the central ministry (bu) and municipal bureaus (ju) are close to the central government, while those at the township and village levels are much further removed.
4. Yan, (The Gift Economy) and Kipnis, (Producing Guanxi) also offer extensive analyses of China's “gift economy.” However, these analyses are based on rural China, which is likely to vary significantly from the situation in urban China. As my work is about urban China, I focus on the arguments surrounding guanxipractice as they are laid out in Yang's work, which is the most complete formulation and analysis of the structure and practice of the “art of guanxi” in urban areas, as well as of its fate in the reform era.
5. Yang, , Gifts, Favors, and Banquets, p. 6, emphasis added.
6. For discussion see Yang, , Gifts, Favors, and Banquets, pp. 217–221 and 146–152.
7. Ibid. p. 15. The institution of guanxi practice threatens the dominance of state power because it is an institutional system that stands in opposition to absolute state control. The “microtechniques” of the gift economy “may subtly challenge dominant power techniques and constitute an oppositional force” precisely because the system is based on “different principles” than the state-defined system (Yang, , p. 178). Elsewhere Yang writes that “the gift economy not only challenges official power, it also subverts the dominant mode of the economy… [I]t alters and weakens in a piecemeal fashion the structural principles and smooth operations of state power” (Yang, , p. 189). Yang sees the emergence of a society of “rhizomatic” networks that constitute a minjian, the Chinese analogue of a public sphere or civil society that exists and functions independent of state organization and control.
8. Ibid. p. 147.
9. Ibid. p. 158.
10. Ibid. p. 147.
11. According to Yang, , “discussions of guanxi xue first appeared in [Renmin ribao (People's Daily)] in 1978, when practices were condemned as harmful to the country” (p. 147).
12. Ibid. p. 147, emphasis added.
13. Ibid. p. 172. For the discussion that follows, it is pertinent to raise the question of whether Yang intends for her argument to extend to the urban industrial economy. Indeed, while virtually all of Yang's research is conducted in urban China – she is very clear on the applicability of her work for understanding urban, as opposed to rural, China – much of her discussion is on the emerging private sphere (the rhizomatic networks and minjian) that guanxi networks and guanxi practice comprise. Through her discussion of the minjian of Chinese society (people-to-people relationships), Yang argues that, “an area to watch for the development of the minjian is the art of guanxi, a dynamic element of the second society… Projecting from guanxi xue, the faint features of a Chinese minjian order can be described in terms of two ‘in-between’ statuses: between the individual and society, and between the individual and the formal group or association” (p. 295). It appears in this statement that Yang's focus is on the ways in which guanxi and guanxi practice facilitate the emergence of a private sphere that is independent of state control. The urban industrial economy, however, is still very much in the hands of the state, and it could be argued that Yang's focus is decidedly not on this sector of Chinese society. However, Yang does, in fact, extend her claims to the urban industrial economy, and she is very explicit about this. In Chapter 4, Yang explores the history of guanxi practice in the PRC, ending with a discussion of the role of this institution in the private and industrial economies of the economic transition. According to Yang, “another reason for the coexistence of gift and commodity economies is that guanxi xue has found new territory to colonize. Far from fading into irrelevance in the rapidly commercializing society, the art of guanxi plays a new and important role in all types of commercial transactions which have emerged with the economic reforms” (p. 167, emphasis added). Following this discussion, Yang goes on to illustrate her point with examples from one industrial organization and one marketing corporation in Beijing (pp. 168–170).
14. Yang, , Gifts, Favors, and Banquets, p. 167.
15. Yang's evidence for the commercial/industrial economy is based on two specific cases, one observed through extended ethnographic research conducted for three months in 1984–1985, the other apparently based on one in-depth interview with a company manager. I will discuss the evidence presented in each of these cases.
16. Yang, , Gifts, Favors, and Banquets, pp. 168–69.
19. Ibid. p. 169.
20. Yang does not indicate whether the interviewee is the general manager (zong jingli) of the corporation. I assume this is the case, as she refers to the interviewee as “the manager of the corporation” (p. 170, emphasis added). The reference is somewhat confusing, however, as many individuals – especially in large corporations – hold the title of manager (jingli); but general managers (zong jingli), vice general managers (fuzong jingli) and middle level managers (jingli) all occupy different positions and different levels of responsibility in Chinese firms. Nevertheless, it appears from Yang's account that the interviewee is an important person in the corporation.
21. Yang, , Gifts, Favors, and Banquets, p. 170, emphasis added.
22. Ibid. p. 163.
23. Ibid. p. 166.
25. Gold, , “After comradeship,” p. 660; see also Yan, , The Flow of Gifts.
26. Although she works in a larger store, the “manager” in this story is actually more like an owner of a small store, as she essentially rents the space in the larger store. As an owner, she is free to set prices as she pleases, as long as she can pay for the contracted space.
27. Yang, , Gifts, Favors, and Banquets, p. 167.
28. See, for example, Schultz, Paul T., “Testing the neoclassical model of family labor supply and fertility,” Journal of Human Resources, Vol. 25, No. 4 (1990), pp. 599–634; Whitley, R., Henderson, J., Czaben, L., and Langgel, G., “Trust and contractual relations in an emerging capitalist economy: the changing trading relationships of ten large Hungarian enterprises,” Organization Studies, No. 17 (1996), pp. 397–420; Granovetter, Mark, “Economic action and social structure: the problem of embeddedness,” American Journal of Sociology, No. 91 (1985), pp. 481–510; Uzzi, Brian, “The sources and consequences of embeddedness for the economic performance of organizations: the network effect,” American Sociological Review, No. 61 (1996), pp. 674–698.
29. Other evidence presented by Yang in this section is the commercial/industrial situations discussed above. Here again, the manager's admission that he would give price breaks to friends (on the first transaction only) hardly portrays the complex “debt logic” of guanxi practice, especially given that these people are “treated like everyone else” in subsequent transactions and given that the manager tried to avoid such situations in the first place (see quote above).
30. Burawoy, Michael and Lukacs, János, “Mythologies of work: a comparison of firms in state socialism and advanced capitalism,” American Sociological Review, No. 50 (1985), p. 723.
31. Burawoy and Lukacs note that it is most often neo-classical conceptions of markets that commit this methodological error. See note 28 for citations on the discussion of the importance of social relationships in various types of economies.
32. I am not arguing here that the Chinese economy is not different from other advanced capitalist economies in important and fundamental ways. I simply offer that Yang's argument of the importance of the gift economy among commercial economic actors in China's transition requires stronger evidence than she presents.
33. Bian, Yanjie, “Cuanxi and the allocation of urban jobs,” p. 972.
34. For discussion of the state placing economic responsibilities on firms, see Guthrie, Doug, Dragon in a Three-Piece Suit: Foreign Investment, Rational Bureaucracies and Market Reform in China (Princeton, NJ: Princeton University Press, forthcoming).
35. A final weakness of Yang's argument that the importance of guanxi practice is accelerating in the economic transition is that the data for her argument were gathered primarily in the 1980s: although data were also gathered during trips in 1990, 1991, 1992 and 1993, according to Yang, (pp. 15–16), her “fieldwork on guanxi xue took place mainly during [her] two years of residence in Beijing (in 1981–83 and in 1984–85).” The problem with basing conclusions about the fate of guanxi practice in urban China on data gathered at this time, especially with regard to commercial and industrial economies, is that reforms really only turned to urban areas and specifically industrial enterprises in 1984 (see Naughton, Barry, Growing Out of the Plan: Chinese Economic Reform, 1978–1993 (New York: Cambridge University Press, 1995)). In other words, Yang conducted her fieldwork either before the reforms turned to urban areas or at the precise time that this shift was beginning to occur. It is unreasonable to assume that the reforms of China's transition would have fully taken hold at that nascent stage of the transition. It is a common misconception of economic transitions that reforms are meaningful at the time they are enacted by the state. On the contrary, it often takes years for reforms to become meaningful for participants in the economy. Nevertheless, it is still remarkable that Yang's experiences depict situations in which the reforms were in fact diminishing the importance of guanxi practice in the industrial economy, even at this early stage of the transition (see the example of the printing factory discussed above).
36. While I make no empirical claims about Yang's vision of Chinese society beyond my discussion of the urban industrial economy, I am dubious about the predictions Yang (and Bian) makes about the future of guanxi practice in Chinese society. It makes little sense to me, for example, how these rhizomatic networks, which seem to engulf all of society and which “stretch out indefinitely and result in kaleidoscopic fluidity of social relations” (Fortes, 1969, p. 108, quoted in Yang, , Gifts, Favors, and Banquets, p. 311), fit with the construction of a rational-legal system and the emergence of formal rational bureaucracies at the firm level. My point here is not to question whether social relations are important in Chinese society; they certainly are, just as they are important in many societies. Nor is it to question whether guanxi and guanxi practice were extremely important in the 1980s. I think Yang's research makes that point clearly. It is simply that I have trouble fitting Yang's (and Bian's) view of the guanxi-over-all-else nature of Chinese society with the rationalizing (but not fully rational) world of China's urban industrial economy. The construction of a rational-legal system at the state level, the emergence of formal rational bureaucracies at the firm level and economic agreements in growing markets that push business to rationalize economic agreements and adopt contracts that rely on rationalized systems will all have growing implications for the (declining) importance of guanxi and guanxi practice as China's economic transition proceeds.
37. Yang, , Gifts Banquets, and Favors, p. 58.
38. This is not to say that there is not a difference in the monitoring capacity of state organizations at different levels of the state industrial hierarchy; nor is it to say that there is not corruption in state-firm relations. On the first point, a number of scholars have argued that monitoring capacity varies with administrative rank in China's industrial economy (Guthrie, Doug, “Between markets and politics: organizational responses to reform in China,” American Journal of Sociology, No. 102 (1997), 1258–1304; Walder, Andrew, “Local governments as industrial firms: an organizational analysis of China's transitional economy,” American Journal of Sociology, No. 101 (1995), pp. 263–301). Not only does the state have different monitoring capacities at different levels of the state administrative hierarchy, but resources vary across this administrative structure as well. My main point here is to emphasize that industrial firms are more closely monitored than individuals in China's transitional economy. Thus Yang's claims about the growing importance of guanxi practice must be qualified by the fact that individuals and industrial organizations are monitored differently by the state. As far as corruption goes, I think two points are relevant. First, while corruption is certainly a factor in China's transitional economy, this fact does not mean that firms are not wary of retribution from state offices. In today's economy, in the context of the Labour Law (laodong fa), the National Compensation Law (guojia peichang fa), the Company Law (gongsi fa) and many others, firms have many reasons to believe that they are being monitored by state offices. I take a relatively positivist view of these changes in that I assume that the creation of new institutional environments (primarily in the form of laws and new economic policies) have an impact on the ways in which economic actors perceive their environments (yet I also believe that these changes become tangible in an incremental way, as economic actors become familiar with the meaning of new institutions and policies over time). Secondly, the fact that organizations face corruption from some officials is a related but qualitatively different issue from the question of the importance of guanxi xue in the transition economy: guanxi xue, according to Yang, is about “the cultivation of personal relationships and networks of mutual dependence; and the manufacturing of obligation and indebtedness.” This institution, in its emphasis on personal relationships, mutual dependence, and the manufacturing of obligation, is fundamentally different from the situation of corruption being carried out by state officials. In addition, I believe corruption is on the decline in China: much like the market pressures firms are experiencing, bureaucrats are increasingly focusing on the bottom line: there is a growing recognition in China that the government can no longer afford to support firms and economic projects that are not economically viable. Thus, where many China researchers imagine unchecked corruption in China, I think this situation is largely mitigated by economic pressures.
39. Guthrie, , “Between markets and politics.”
40. See Yang, , pp. 51–53, for discussion of the extent to which guanxi practice is imbued with negative connotations.
41. Bian, , “Guanxi and the allocation of urban jobs,” p. 984, note 27.
42. While there is an established debate over data-gathering techniques tied to ethnographic methods, there has been little discussion over these issues with respect to in-depth interviewing as a research method. Nevertheless, the issues raised in the debate over methodology in ethnographic research are relevant here: on one side of this debate sit ethnomethodologists, who believe that social contexts are inherently situational, an approach that leads to “extreme relativism” in sociological analysis (for discussion see Burawoy, Michael et al. , Ethnography Unbound: Power and Resistance in the Modern Metropolis, (Berkeley, CA: University of California Press, 1991), p. 276); on the other side of the debate sit positivists and proponents of “grounded theory,” who believe that, while situationally specific, the actions and words of research subjects must be taken, to a large extent, at face value, as evidence of the social world as the research subjects experience it. Inasmuch as the goal of positivists and grounded theorists is “the pursuit of generalizations, induced from comparisons across social situations” (ibid. p. 275), I place my approach to in-depth interviewing in line with positivists and grounded theorists.
43. Kalleberg, Arne and Van Buren, M., “Is bigger better,” American Sociological Review, No. 61 (1996), pp. 47–66; see also Kalleberg, et al. , Organizations in America (Thousand Oaks, CA: Sage, 1996), who have pointed out that the distinction between organizations and establishments is an important one in organizational analysis: organizations are larger structures that are sometimes comprised of multiple establishments (sites). For single establishment firms, the organization and the establishment are the same. In this study, I have drawn specifically on firms as organizations, as opposed to establishments, as the units of analysis for the research. It was necessary to conduct the study this way, as establishments often do not collect data on the organization (i.e. the data is collected by the central administrative offices for the organization as a whole). In two cases in which an establishment that was part of a larger multi-divisional organization was first contacted through selection in the Zhongguo qi shiye minglu quanshu (The Chinese Directory of Organizations and Institutions) (Beijing: Zhongguo qi shiye minglu quanshu bian wei hui, 1993) (out of five multi-divisional organizations that appeared in the sample overall), I inquired after the name and phone number of the larger organization of which the establishment was a part. The larger organization's central administrative office was then contacted and the data for that organization was collected for the larger multi-divisional firm. One problem in selection that might be raised here is that, because establishments are listed in the Chinese Directory, there is a higher probability that multi-divisional firms will appear in the sample. However, the occurrence was rare.
44. Selection of the sectors for the study was based on a 2 × 2 matrix cross-referencing state presence (high/low) with asset/technological intensity (high/low). The sectors chosen for the study were: petro-chemicals (high/high), food stuffs (high/low), electronics (low/high) and garments (low/low). Determination of these sector characteristics was made based on interviews with governmental officials and managers from the pilot study. For each of the sectors, the 20 organizations in the sample roughly represent a 10% sample of the producing industrial organizations in that organizational field. In terms of sample size by sector, this sampling is similar to other organizational studies. For example, Dobbin, Sutton, Meyer and Scott's recent study (see Sutton, J. R., Dobbin, F., Meyer, J. W. and Scott, W. R., “The legalization of the workplace,” American Journal of Sociology, No. 99 (1994) pp. 944–971; Dobbin, F., Sutton, J. R., Meyer, J. W. and Scott, W. R., “Equal opportunity law and the construction of internal labor markets,” American Journal of Sociology, No. 99 (1993), 369–427 was based on 279 organizations spread across 13 sectors; they also sampled equally across the sectors.
45. The size of the overall universe of organizations reported in the Chinese Directory (8,800 units) is compatible with the count of municipal Shanghai's medium- and large-scale enterprises (Zhongda giye) reported in Shanghai tongji nianjian (Statistical Yearbook of Shanghai) (Beijing: Zhongguo tongji chubanshe, 1994) p. 139 which is 8,948. Aldrich, H., Kalleberg, A., Marsden, P. and Cassell, J. (“In pursuit of evidence: sampling procedures for locating new businesses,” Journal of Business Venturing, No. 4 (1988), pp. 367–386) point out that this type of source is likely to under-represent new organizations, an issue that is likely to be exaggerated in my study, given that the most recent version of the Chinese Directory was published in 1993. However, this problem is assuaged by the fact that newer organizations are likely to be smaller organizations and I was specifically sampling organizations of 50 or more individuals.
46. For discussion of the cut-off point of 50 or more employees, see Edelman, Lauren, “Legal environments and organizational governance: the expansion of due process in the American workplace,” American Journal of Sociology, No. 95 (1990), 1401–1449.
47. The criterion of production orientation turned out to be an important one with respect to the Chinese Directory, because the lists also included research institutes and organizations that would fall under the rubric of commerce for the given sector. While both of these types of organization would fit into the broad sense of “organizational field” as authors such as DiMaggio, Paul and Powell, Walter (“The iron cage revisited: institutional isomorphism and collective rationality in organizational fields,” American Sociological Review, No. 48 (1983), pp. 147–160) define it, they are fundamentally different from the other organizations in the sectors on criteria such as fixed assets, turnover, profits, etc. This criterion was determined prior to contact, as the lists of products and services are given in the Chinese Directory; the reported size of the universes were adjusted appropriately. However, the determination of the size criterion (i.e. at least 50 employees) could only be made after first contact, and, since only a sample of organizations in the universe were contacted, the universe sizes may also include some small scale organizations. This problem is minor, though, because in all of the organizations contacted for the study, I only encountered three organizations (4%) with fewer than 50 employees.
48. See Guthrie, Doug, “Organizational uncertainty and labor contracts in China's economic transition,” Sociological Forum (forthcoming); see also Guthrie, , Dragon in a Three-Piece Suit.
49. Due to space constraints, I have refrained from presenting all quotations that express the sentiments upon which my argument is based. However, for all quotations that are presented throughout the text, at least one other respondent, and in most cases many others, expressed similar sentiments.
50. Despite the fact that two managers cited this law as influential in their views of guanxi practice, I have been unable to find it on the books in China.
51. The bivariate association between administrative rank and the use of guanxi practice is statistically significant at p <.01 (2-tailed test).For more discussion of the effects of a firm's position in the administrative hierarchy on organizational decisions and practices, see Walder, Andrew, “Property rights and stratification in socialist redistributive economies”; Guthrie, “Between markets and politics”; Guthrie, , “Organizational uncertainty and labor contracts in China's economic transition”; and Guthrie, , Dragon in a Three-Piece Suit.
52. Firms at the upper levels of the administrative hierarchy are more likely to land joint venture projects, in part precisely because they are positioned closely to the municipal bureaus. They land more important projects (because foreign investors rightly assume that approvals will be more likely to occur for ventures involving firms at this level of the hierarchy) and, as a result, they have less actual need for the use of guanxi practice to push these projects through; theirs are the types of projects the state would like to see passed in the first place.
53. One additional factor to consider is that variation across organizational types in the extent to which managers report a declining significance of guanxi practice might indicate variation in the extent to which organizations are forced to stick to the Party line on guanxi practice. While this may be part of the story behind my data (and behind Figure 1), a fuller portrait of my research indicates that attitudes toward guanxi practice – as well as other organizational practices – are more than simply reflections of variation in the monitoring capacity of state offices. For example, in my forthcoming book on the rationalization of the Chinese workplace (Dragon in a Three-Piece Suit), I look specifically at the emergence in China's economic transition of intra-organizational structures such as labour contracts, formal grievance filing procedures, a rational price setting system and the specification of arbitration clauses in joint venture contracts, among other things. There is a complicated story behind the emergence of all of these rational structures and the processes and factors driving each organizational change are different. However, it is important to note first that a firm's position in the state administrative hierarchy is not a singular factor behind several of these changes; in some cases, it is not a significant factor at all – my research shows that there is no bivariate correlation between administrative rank and several rational organizational structures which are being adopted by firms in China's economic transition. Second, there is significant variation in the factors that drive organizational adoption of state-mandated changes. If it was indeed the case that variation in reported practices was only a function of variation in adherence to a Party line, we would expect that no other factors (such as size or an organization's financial health, etc.) would relate significantly to the decision to adopt state-mandated changes of the reform era.
54. See Bian, , “Guanxi and the allocation of urban jobs”; see also Bian, Yanjie, “Bringing strong ties back in: indirect ties, network bridges, and job searches in China,” American Sociological Review, Vol. 62, No. 3 (1997), pp. 366–385. While it appears that my presentation of data on the use of guanxi in hiring decisions, to some extent, places me in direct dialogue with Bian, it should also be noted here that, while Bian has conducted the most extensive work on the role of guanxi in a specific practice in the urban industrial economy, his work does not unfold from exactly the same distinction as that of Yang. Although Bian's work is about the use of guanxi in the procurement of jobs, it is not clear that he is talking about guaivci xue as Yang is (and as I am). Through his examination of Granovetter's strength-of-weak-ties theory, Bian, (“Bringing strong ties back in”) analyses the use of connections to learn of job possibilities, a situation that is qualitatively different from the concept of guanxi xue as Yang presents it (i.e. the gift economy, the manufacturing of indebtedness, etc.). Overall, the best test of substantive changes in guanxi xue would focus on the extent to which guanxi xue is relied upon in the approval processes of specific organizational projects (such as joint venture projects). However, this type of data was unavailable in my interviews with factory managers, as managers were often more comfortable talking about general issues of approval processes than specific projects upon which they had worked.
55. This assertion is based on a multivariate logistic regression analysis; results are available from the author upon request; see also Guthrie, , Dragon in a Three-Piece Suit. The bivariate correlation between these variables is statistically significant at p <.01 (2-tailed test).
56. This is often less important for large, powerful firms which may have multiple joint venture relationships. However, even large, powerful firms have one or two joint venture relationships that are very important to the success of the organization.
57. DiMaggio, and Powell, , “The iron cage revisited,” pp. 147–160.
58. Yang, , Gifts, Banquets, and Favors, pp. 167, 147, respectively.
* The research for this study was supported by the Social Science Research Council and the American Council of Learned Societies with funds provided by the Ford Foundation and a University of California at Berkeley Vice Chancellor's Research grant. Administrative support was provided by the Shanghai Academy of Social Sciences; I would especially like to thank Zhao Nianguo and Li Yihai for administrative help with the research. I would like to thank Neil Fligstein, Tom Gold and Sivan Baron for extensive comments on earlier drafts and throughout the research.
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